Not your favorite topic… I know. But I’m SO PROUD of you for reviewing this article. No one wants to pay extra penalties for not making a deposit with the IRS. So I want to give you a few tips to make sure you understand the rules when it comes to filing a personal extension. Remember an Extension is NOT an “extension” to pay any taxes you may owe, but an “extension” to file. Thus, it’s important to consider if you ‘owe’ and should send in some money with your extension.
Now some of you may say…”well, I’m not going to send in any $$ so I’ll just forget the extension all together”. NOT GOOD!! The Extension (Form 4868) is more important than the deposit of $$. IT’S CRITICAL you still file an Extension!! The failure-to-file penalty (in other words failure to file an Extension) is more than the ‘failure-to-pay penalty’ and you don’t want to compound the problem by not filing an Extension.
So back to the $$. I KNOW you’ll file an extension, but how much should you pay with your Extension…if anything at all??!! This is the golden question.
The reality is that it is an ‘estimate’…and you want to do your best to get within 90% of what you think you may owe. Here are some general guidelines:
General Guideline #1– Your Extension, FORM 4868 is due by April 17th this year, and we HIGHLY RECOMMEND it’s postmarked. The automatic extension to file your actual tax return is good until October 15th. If you are a current client of ours, OR have signed an Engagement Letter with us for this year, we will file this Extension for you.
General Guideline #2– If you request an extension of time to file by the tax deadline and you pay at least 90 percent of your actual tax liability with the extension, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.
General Guideline #3– If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
Safe Harbor #1 – If you didn’t owe last year, and you made about the same amount of money, and had the same withholdings or made the same deposits…DON’T STRESS…don’t send in a payment.
Safe Harbor #2 – If you owed $$ last year, and you made about the same amount of money, and had the same withholdings or made the same deposits… DON’T STRESS…just SEND in the same amount you paid LAST YEAR with your 2016 Extension.
Safe Harbor #3 – If you made more money in 2017 than you did in 2016, then you need to do a little math. First, think of what tax bracket you’re in. (Tax Bracket Below). Then multiply your tax bracket by your increase in income. Say you’re in the 25% bracket and you made $50,000 more in 2017 than you made in 2016, that would be $12,500 ($50,000 x 25%). Next, take this additional $12,500 and send it in with the tax you paid last year (on your 2016 return). Also, keep in mind any additional tax you may have already withheld or deposited in some other way during 2017.
2017 Federal Individual Income Tax Brackets
Tax Rate Single Married/Joint & Widow(er) Married/Separate Head of Household
10% $1 – $9,275 $1 – $18,550 $1 – $9,275 $1 – $13,250
15% $9,276 to $37,650 $18,551 to $75,300 $9,276 to $37,650 $13,251 to $50,400
25% $37,651 to $91,150 $74,301 to $151,900 $37,651 to $75,950 $50,401 to $130,150
28% $91,151 to $190,150 $151,901 to $231,450 $75,951 to $115,725 $130,151 to $210,800
33% $190,151 to $413,350 $231,451 to $413,350 $115,726 to $206,675 $210,801 to $413,500
35% $413,351 to $415,050 $413,351 to $466,950 $206,676 to $233,475 $413,501 to $441,000
39.6% over $415,050 over $466,951 over $233,476 over $441,001
If you’re not sure, look at your 2016 taxes paid, versus your income, or even use 25% as a starting point and go up or down from there based on your income bracket. Next, come up with a figure of how much more money you made in 2017 compared to 2016 and DIDN’T already withhold or deposit some taxes on that amount. Then multiply your tax rate (let’s say 25%) by your additional income, or the income you didn’t pay taxes on yet (for example$50,000). Thus, your additional tax owed would be $12,500 ($50,000 x 25%). Finally, take the $12,500 and add this to any additional tax you paid with your 2016 tax return (separate from withholdings) and send it in with your Federal Extension.
DISCLAIMER: This is important!! When using any of the Safe Harbor’s above, please know that we are not guaranteeing you still may not owe taxes when you file your return, OR that you won’t have penalties. This is simply an estimate to help you get a jump on what your taxes are for the year. Keep in mind this is STILL a fantastic step to take in order to reduce or eliminate the chance of any penalties. Again, try to deposit 90% of your estimated taxes and you’ll be doing great!!
What about your State? With your State taxes, follow the same method above. Run the numbers and if using Safe Harbor #3 probably use an estimated percentage rate of 8% as a good round number for most states. As for the extension, MOST States don’t require their own extension. Just do a quick Google Search for your State’s rules regarding your extension.
How many of you build, track and utilize credit card points for personal benefit? It’s a great tax strategy (credit card point redemption benefits are currently tax free), AND it’s an added bonus when you have to pay one of the most dreaded bills of the year.
No matter how you file your income tax return—by mailing a paper copy or electronically—you can pay your taxes using a major credit card or a debit card online. Individuals can make these payments 24 hours a day, seven days a week, using certain cards as long as they follow the proper procedure.
There are actually several advantages when turning to a credit card to pay your tax bill:
Also, keep in mind that redeeming airline miles isn’t taxable. This is exciting that you can earn point for taking tax deductible travel, and then even more miles/points by paying your taxes with a credit card. See related article here.
Two companies, Official Payments Corporation and Link2Gov Corporation, are authorized service providers for purposes of accepting credit cards, and debit cards from both electronic and paper filers. The companies have their own fee schedules and provide internet payment services. You can use these companies to charge taxes to an American Express, Discover Card, MasterCard, or VISA card or BillMeLater account or pay using a debit card. If you file early, you can still wait until April to make the online payment.
You can use the above credit card methods to pay any tax due on your Form 1040, 1040A, or 1040EZ; individual estimated taxes; installment payments; payments with extension of time to file (Form 4868); trust fund recovery penalty; and Form 5329 (IRA taxes).
Be aware that also some states accept credit card payments of state taxes. The federal and state payments are not combined.
Before you use any of these programs, make sure you do your research on the fees, as well as any other potential pros and cons. Maybe paying your taxes could actually give you a vacation when it’s all over.
Recently, I’ve had a lot of inquiries about what may or may not be deductible on a business trip. Frankly, this isn’t very surprising due to the passage of the new tax legislation, known as the Tax Cuts and Jobs Act (“TCJA”).
The elimination of the entertainment expense and the collateral damage it’s wreaking on the meals expenses has many worried about their business travel, and related leisure. Some believe that all of these expenses have left the harbor never to return, and regrettably their concerns are valid.
Let me shed some light on the situation and help provide a little clarity. As usual, the best way to do this may be to use an example of an upcoming business trip common to many.
Example: You are scheduling a trip for an annual conference and training that takes place out of state. The purpose of the meetings will be necessary training, education and networking.
Question: What is deductible and what are the applicable rules I should be concerned about?
First, in order to answer this question, keep in mind that a trip such as this is broken into several expense line items. There will most likely be a mix of travel, auto, meals, supplies, registration fees, or even marketing expenses. Thus, it’s important you track your expenses in a detailed manner and understand their differences.
This is the ‘low hanging fruit’ regarding the expenses on the business trip, and certainly the easiest issue to grasp and discuss. Assuming the trip is entirely for business (something I’ll discuss further below), the good news is that all of the following expenses are 100% deductible:
Potential for Auto Expenses
Let’s say you decide to drive to the conference rather than take a plane, train or bus (if you want to subject yourself to such misery), then your standard auto deduction rules apply. Thus, if you drive an SUV or a truck (and throw the cost of gas to the wind), then you can deduct all of your out pocket costs for your auto and continue to depreciate your vehicle.
However if you are like 90% or more of my clients, you are on the ‘mileage method’ your allowed to deduct 54.5 cents per mile all the way there, running around town as needed at the conference and the entire drive back. Essentially, the mileage expense takes the place of your airfare and rental car, but all the other travel expenses above would still apply.
DON’T FORGET, if you still went to the airport and flew to the conference, you can deduct the business mileage on your own car to drive to the airport for your trip.
Meals while on the trip
Yes, dining out has been a confusing matter after the TCJA, but meals while traveling survived. Thus, don’t fret and enjoy the food. Again, assuming the trip is 100% business (see below), then ALL of your food is deductible, BUT limited to 50%. Thus, if you pay for a $40 steak dinner and a $10 tip (don’t be cheap), then your total meal cost is $50, BUT the actual write off is $25. ($50 x .50%)
Nevertheless, meals all the way there and during the conference are a write-off and remember it includes your coffee in the morning, Rockstar at lunch (my Achilles heal), and even the bar tab in the evening.
Two points of CAUTION: Room Service is still 50% (don’t try and bury this in the hotel bill, it’s still 50%), and if you buy someone else dinner on the trip, it probably isn’t a write-off. Now, I’m not talking about traveling with your board of directors, business partner, or employee…these meals are still part of the traveling meals expense. What I’m saying is that if you were to take a prospect or client out to dinner while on your trip, until further IRS Regulations that meal would probably be considered an entertainment expense and NOT a write-off. Be careful about this one.
Entertainment while at the conference
This is the killer. Basically this entire expense has been gutted from the Code under the TCJA. So here is the list of what you CANNOT write-off while on your next business trip:
Conference fees and related expenses
It may go without saying, but I do so anyway. All of the conference registration fees, supplies, and related promotional or educational material you buy at the conference is 100% deductible. This is of course assuming the conference is directly related to the production of income in your business and not a self-help or marriage enhancement retreat your attending.
Also, keep in mind that if while attending this powerhouse business conference you decide to sponsor a booth and do some advertising, give out some promo material and capture contacts, all that should be deductible 100% as a marketing expense.
Rules I should be aware of
Making sure the trip qualifies for as many days business as possible is key. Essentially, you want the trip to be 100% business. There are really 3 important factors:
Factor 1 – The day of travel there, and the day of travel back are considered business.
Factor 2 – In order for each day to count as business, you must do at least 4 hours of business, OR attend a required meeting that couldn’t be combined or taken care of on another day during the trip,
Factor 3 – Remember, weekends don’t count. If you can do valid business on Friday and Monday, essentially requiring you to be there over the weekend, then the entire weekend qualifies as business too.
For example, if you fly on Thursday, do required business on Friday or work for 4 hours, get stuck there on the weekend, and then attend another required meeting that couldn’t have been handled on Friday, THEN travel on Tuesday, the entire 6 days are a write-off and qualifies as a 100% business trip.
Also, I hate to say this, but I can’t write off your speeding ticket on the way there or the parking tickets you got outside the conference center because you were lazy- Sorry.
One last word of caution as a fellow business owner – “Don’t let the tail wag the dog”. Just because it’s a good write-off doesn’t mean you can throw caution to the wind and rack up a big credit card bill on the trip. Be cautious, be on a budget and don’t overdo it. Remember, a penny saved is a penny earned. Business travel can truly cut into your profit. Be cautious and wise.
Well, things have changed in 2018 when it comes to writing off meals and food expenses in your small business…and frankly that’s for any size business. Large or small, business owners have to reevaluate their budget for the food they were able to deduct in the past.
In the past, (2017 and earlier) business owners were able to deduct 100% certain food or dining items, now they are 50%.
Also, there were certain items that were deductible up to be 50% in 2017 and earlier, AND now some of those have disappeared all together. Let’s break it down into some bite size pieces (sorry I couldn’t resist).
Here’s what is now 50% (previously a 100% write-off):
There is a growing debate and sharp divide among CPAs and tax professionals that the ‘meals out with a client or prospect, or even business partner’ are NOT deductible. The argument is that when the entertainment expense was completely repealed under the Tax Cuts and Jobs Act, by default it grabbed the meals expense under it’s umbrella.
Regrettably, it appears the majority of tax professionals concur that this type of meals expense is no longer a write-off for business owners and the safe bet is to ‘track’, but not ‘deduct’ these expenses until further guidance from Congress or the IRS.
In my opinion, this is an outrageous provision in the new tax law, however I am compelled to be cautious about taking this type of deduction.
Historically, taxpayers have had some success in urging Congress to repeal certain unfavorable tax law. For example, in 1984 Congress passed some aggressive and highly controversial rules regarding the auto deduction. Within nine months, the House and Senate repealed the new law. We can only hope for the same here.
Substantiating your expenses.
In light of these more complicated rules and frankly confusion, its more critical than ever to track your expenses carefully in order to allocate and deduct them in the proper manner come next spring. Here is an article on travel and meals regarding substantiation and recording procedures.
10 Takeaways and examples:
My personal opinion is that many of these meals when taking out clients or prospects out to lunch or dinner, previously deducted for even 50%, should be an advertising expense. However, that’s just my opinion and I’m not the IRS Commissioner, nor can I vote for the majority of Congress.
Trust me, I’ll keep looking for loopholes AND keep you posted. But in the meantime I have a MAJOR recommendation. Please send an email to your Congressmen or Congresswoman. Here is how you can reach them:
Bottom line, even with these major tax-law changes, dining and or event and office food can add up to be a significant expense on your books. Keep good track of your food expenses and keep several categories in your QuickBooks. It’s not a big deal to do so and it will give you an important opportunity for a discussion at tax-prep time.
I know I’m not covering new territory here, but January is a little depressing – right? I mean, it’s cold, the holidays are over, your football team has probably already been eliminated from Super Bowl contention (ok – not you, Patriots fans), and did I mention that it’s cold?
It’s also the time those credit card bills start to show up from all that December spending. Maybe it’s time to redeem those credit card points or miles you’ve been saving up and jump on a plane headed someplace warm. How about Miami, or maybe Maui? Sounds exciting, right?!
Well, before you start clearing your calendar, think about this – redeeming those points or claiming your rewards may be a taxable event. Yes, I know it’s surprising, but the IRS looks everywhere when it comes to finding opportunities to collect revenue.
Ok, now that I’ve interrupted your daydreams of sipping a tropical drink on a beach somewhere, let’s consider several issues and strategies that can save you big time:
Some common examples of credit card rewards that do not need to be reported as income are cash-back programs, travel miles bonuses, accumulated points towards future purchases, and credit card sign-up bonuses that require a financial transaction, such as making a purchase, to be realized.
Anything you receive that isn’t tied to actual use of the card, whether it’s cash, airline miles, tangible goods, Super Bowl tickets, or anything else, is going to be considered taxable income. And because banks and credit card companies don’t like running afoul of the IRS, you can count on receiving a 1099-MISC tax form in the mail for the value of bonus. If you don’t like running afoul of the IRS, you will in turn report that income when you file your personal tax return.
Bottom line, if you are simply redeeming miles or points, you aren’t going to be taxed on the value and should be skipping to the ticket counter. However, with that being said, don’t ignore a 1099-MISC, if your credit card company or bank sends you one in the mail.
If you don’t understand why you received the 1099, call your credit card company. If it turns out to be legit, then report the income and pay the taxes. Following this procedure will help you prevent a small annoyance (potentially paying taxes on a few hundred extra dollars in income) into a much bigger problem (an omission that you have to explain later to the IRS during audit).
Yes…you read it correctly. There are a lot of benefits for the small business owner in the Tax Cuts and Jobs Act, but this isn’t one of them. It truly is a major blow to small and big business, and the cost of doing business just went up.
Example. Tom is an insurance agent and small business consultant. He takes one of his clients golfing and out to lunch to give guidance on a business transaction and sell an insurance policy.
Write-off? Nope. Because the activity occurred in 2018, Tom gets no deduction and arguably the meal isn’t a write-off either.
First, all small businesses and entrepreneurs are affected; no one is exempt from this provision in the new tax law. Sole-proprietors, S-Corporations, LLCs and C-Corporations – all beware.
So long as an expense was directly related to (or, in some cases, even associated with), the active conduct of a trade or business, you were allowed a deduction for an activity generally considered to be entertainment, amusement, or recreation. The limit was up to 50% of the expense, but it was still something and oftentimes worth the expense to do some business while ‘entertaining’.
No deduction period, is allowed for:
Do you know how much business is transacted on the golf course, in the sky box, or over a mud bath at the spa? As a tax professional I’ll tell you- a lot! What happened to courting a new client and trying to get to know each other a little before closing the big deal? Entertaining is a huge part of doing business. I think this is a terrible provision in the new law and should be changed. Don’t forget to let your elected official know in 2025 (That’s right, more than likely no changes in the law until then). Ughh!!
I think this new provision will also have an impact on the entertainment business. You can’t tell me that sporting events, season passes to the theater, or golf course won’t feel the impact. Business is a huge part of entertainment and vise-versa. Yes, Hollywood may even think that the GOP had it in for them, but of course a lot of politicians golf too so who knows!!
Are meals effected too?
Meals are also significantly impacted under the new legislation! Believe it or not, some tax professionals are arguing that business meals with clients or prospects are no longer deductible and completely gutted from the legislation when it comes to a business meal and night out on the town.
Essentially, experts are arguing that business meals were previously deductible because they were directly related to IRC Section 274(a) and were deducted as being “directly related” to, or “associated” with the entertainment expense. However, believe it or not professionals are arguing that the elimination of the entertainment expense means that those client meals out are gone too.
Entertainment deductions that survived
If there is any good news, there are a few ways to write off entertainment expense under IRC Section 274(e). Mind you, these are very unique types of expenses and in my experience most businesses won’t find these useful, but here they are:
Most importantly, stay tuned as we see the advent of specific IRS regulations and implementation of the new law. Of course, a slew of audits and court cases will follow that will further give us guidance regarding the new provisions. It’s not over yet…well, at least it’s in effect until 2025 and then a future Congress will have to take it up and deal with it.
First of all, kudos to Wisconsin Senator Ron Johnson and the other Senators working behind the scenes to help protect small business owner’s interests in this critically important tax bill.
The truth of it is, the House bill does very little for small business owners, as I will set forth in detail below. The Senate bill however has a glimmer of hope for us, and hopefully Senator Johnson’s objections and concerns will be heard.
Over the past three weeks, I have been extremely vocal about my personal concerns regarding the House Bill and what should change in the legislation before it becomes law. In fact, I will go as far to say that the House version hurts small business, let alone helps the average small business owner.
In fact, I was shocked to see Treasury Secretary Mnuchin’s comments that this legislation “substantially helps small business owners”. Either his definition of ‘small business’ is far from that of mine, yours and the Small Business Administration (SBA), or he can’t do math. Since he is the Treasury Secretary, I’m going to assume we have a definition problem.
But enough rhetoric, lets break it down and I’ll give you the pros and cons of both the House and Senate Bills in a simple, easy to understand format (as much as humanly possible with over 750 pages of combined legislation material to pour through and decipher).
Moreover, at the end of this article I’m going to give you the method and resources to contact your elected representative, and preferably your Senator, to express your concerns and plead for some relief for the small business owner as ‘reconciliation’ between the two bills takes place over the next few weeks.
Now, as we dive into ‘the numbers’, it is important to put this Bill in perspective regarding the ‘definitions’ and ‘facts’ being thrown around. It may be interesting for you to note that the IRS and SBA have an extremely broad definition of ‘small business’. Believe it or not, under both of these institutions, a small business could be anywhere from 2 employees to 500 employees, or sales from 7Million to 35Million.
However, according to the U.S. Census Bureau in 2015 there are two critical facts you and I need to recognize:
The point being is that when the GOP leadership stands up in front of the microphone or camera and says that this legislation is going to substantially help small business aka. “Main Street”, don’t be fooled by the smoke screen. There is a very slim cross section of small business owners this legislation will ‘substantially’ benefit, and its primarily ‘Big Business’, not the firms with less than 20 employees.
Moreover, in fact this legislation from both the House and Senate delivers a whopping 15% permanent and across the board tax cut to large corporations, NOT the 97.9 percent of small business owners or 99 percent of C-Corporations that have no ‘global impact’ and need for a tax cut to be competitive.
The benefits to ‘pass through businesses’ that the GOP leadership loves to boast about, is so convoluted, complex, and watered down, it’s truly a joke. In fact, if I was IRS Commissioner John Koskinen, I would be thrilled to get this legislation on my desk. The IRS has been trying to find any method to further regulate pass-thru compensation for year!!
This legislation will give the IRS carte blanche latitude to now further scrutinize officer/owner compensation. It will in fact have a negative impact on pass-thru tax planning and potentially even a chilling effect on the whole concept and benefit of a pass-thru company. It’s actually frightening the negative impact this legislation could have on millions of S-Corporation owners.
Here is what the small business ‘pass through business owner’ really gets in the terms of tax savings:
GOP Tax Bill Summary for Small Business
So rather than just complain and not give any constructive recommendations, here are my 10 ‘Amendments’ I would propose to the House and Senate as you go through ‘reconciliation’:
In summary, I cannot emphasize enough how important this is for you, the small business owner, to take seriously and contact your elected official. Share you concerns. Demand more. The two Senators from your state are probably the best method to hopefully finding some resolution. This is primarily because the Senate has a much slimmer margin for victory and have to carve out a Bill during the reconciliation that will pass the Senate. At this point anything will pass the House as you can see from my analysis above.
This may seem bold to hear from your CPA. I’m not a realtor selling you real estate, but as a tax lawyer, I am actually trying to help you save taxes and build wealth at the same time.
I consistently repeat and encourage my clients and students everywhere I go that working towards buying a rental EVERY year is critical to building a retirement and wealth. It’s a goal that is tangible, emotional, conceivable and realistic for most Americans.
Now I realize a rental may not be for everyone, AND some of you have had a bad experience before with real estate. However, I would at least like to encourage you to consider it and get the process started. Maybe you already have a deal in the works.
A good rental property strategy will not only to build an incredible long-term and sometimes immediate tax strategy, it will inevitably build wealth for future retirement and should provide current cash flow benefits if you choose wisely.
Here is a diagram of the 4 benefits to Rental Property I want to discuss briefly with you and suggest you consider this strategy seriously as part of your investment and tax planning strategy.
The 4 Benefits to Rental Property:
2. Mortgage Reduction
3. Tax Benefits
4. Cash Flow
Appreciation. This is rental property you are keeping at least 7-10 years. This is not a fix and flip strategy. The National Association of Realtors (“NAR”) has reported that real estate nationwide has averaged over 6.74% appreciation during the past 50 years.
This rate of return out performs the S&P 500 and most Wall Street investments. Now I realize not all property in every market experiences this growth, but some actually do even better than the national average. Don’t discount appreciation.
Mortgage Reduction. This is often an overlooked benefit to rental property. Think about it. If you purchase wisely, the property should be at least be ‘breaking even’ in cash flow and thus the renter is paying the mortgage for you.
The principle reduction in the mortgage instrument is an ongoing tax-free benefit along with appreciation as you hold the property. This is a return you can calculate and count on over time with a typical mortgage. Keep this in your spreadsheet as you calculate your total Return on Investment.
The popularity of renting a house, townhome or condo on a short-term basis through websites such Airbnb, VRBO has exploded over the past few years. Just to give you an idea of how big the industry really is, consider that Airbnb is currently active in more than 65,000 cities and 191 countries, and it is projected to log 100 million guest arrivals in 2017. Looking to book a night or two in New York City? Airbnb has more than 43,000 active listings.
Yes, the profits can be significant compared to a standard monthly rental property, but only when the conditions are ideal. Real estate investors should be cautious and prudent before assuming their property could be the perfect vacation rental property. A quality and successful vacation rental property needs to be in the right location with consistent demand and not run into any local regulatory snags.
However, assuming all goes well, the tax planning needs to be taken more seriously as well because of the typical profit due to increased cash flow. Thus, all the revenue generated by these stays begs the question: How exactly is all this income taxed? Let’s break that question down into a couple sub-questions:
How (and where) do I report my short-term rental income on my federal tax return?
First, it’s important to know that in certain (limited) circumstances, you may not have to report this income at all. If: 1) you reside or stay on the property at some point during the year; and 2) the property was not rented at a fair market rental price for more than 14 combined days during the year, then the income from the rents is likely not taxable(no matter how substantial the amount)! This can be a sweet situation for homeowners when the Super Bowl, or some other “Mega-Event”, comes to your town. In fact, I am starting a campaign to bring the 2030 Winter Olympics to Cedar City, Utah – just so I can rent out my house for two weeks without being required to report the income on my taxes! The drawback is that the only deductions allowed for the property will be otherwise deductible property taxes and mortgage interest.
At the end of the day, the more you look like a hotel or “true” bed & breakfast, the better the chance that you will need to report your income from the rental on a Schedule C, and pay self-employment taxes on that income.
If you don’t provide substantial services to your guests, then the income from your short-term rental can be reported as passive Schedule E income that is not subject to self-employment taxes (which is obviously an advantage). Does this mean you need to turn off the electricity and require guests to bring their own bottled water for drinking and bathing? No! The following is a list of “Insubstantial Services” that you can provide without jeopardizing your Schedule E status:
How can I deduct expenses related to my short-term rental?
The answer to this will depend on how and whether the “Vacation Home Rules” apply to your situation, and whether your short-term rental is considered a “passive” or “active” activity (which is different than the determination as to whether to report the income on Schedule E or Schedule C). We won’t be getting into how these determinations are made right now, but depending on how this determination comes out, you may be restricted to deducting rental losses incurred only against other passive income (and carrying forward losses you cannot use in a given year), or you may be permitted to deduct a loss of up to $25,000 in a year against non-passive income (such as wages). Therefore, these are important issues to explore with your tax professional.
If you are (or are thinking about becoming) involved in the hot short-term rental industry, these are issues you need to be planning for and facing head-on. Please make sure you are getting the advice of a qualified and experienced professional.
The NEBDG Blog, by our Tax & Legal instructor Mark J. Kohler, is "The Real Estate Investment Conversation You Can Rely On." Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the books “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com. Let us know if there is a topic you would like to discuss!