Effective Tax Preparation

Welcome to tax season! For the most effective tax preparation, be prepared! I advise clients to work with a tax pro using professional software. I use Intuit’s Proseries Professional, which provides a Tax Organizer to make sure you don’t miss a thing!  (Intuit is the maker of Turbotax, Quicken, and Quickbooks). I and only I offer my clients Tax Mastery© my custom tax program that shows them how to pay the lowest legal taxes.

My goal is to provide clients with “ease and effectiveness,” sothey pay the lowest legal taxes with the least effort and the lowest tax preparation fees. To do that:

  • Make sure that your preparer has considerable tax training and experience.
  • Make sure your preparer, whether a CPA or not, spends the majority of his time with tax matters..
  • Send your preparer a completed Tax Organizer with all required documents: W-2’s, Form 1099’s, Form 1095-A, etc.Don’t send documents piecemeal.
  • Meet personally with the tax preparer and discuss needed decisions.
  • Provide birthdays of taxpayers and dependents.
  • Review all credit card and checking statements for tax related items.
  • Don’t duplicate tax information on the organizer.
  • Round entries to the nearest dollar.
  • If you have a list that adds up to an entry in the Organizer, explain it.
  • If you buy or sell an investment or a business asset, list its date purchased, cost, selling price and sale date.
  • List each charitable gift and date, the name of charity and its address. Describe gifts of  property and cost.
  • Provide closing statements for new or refinanced mortgage loans.
  • If you are an employee with job-related expenses, list Employee (Miscellaneous) deductions. Your preparer should have plenty of ideas for these. I offer my clients checklists for these and many other deductions.
  • If you have a Business, its revenue and expenses are reported on Schedule C, not Schedule A.
  • If you have rental properties identify their rent and expenses separately. List the cost and date of rental use.
  • For each business vehicle, enter business mileage and total mileage.
  • For dependent care, list the provider’s name, tax number & address.

With more than thirty-five years of experience, there is so much more I could say. Furthermore, with my one of a kind Tax Mastery© program I can give you advice designed just for you to help you pay the lowest legal taxes. Call today for an appointment.

Posted in Business Tax, Individual Tax

Real Estate, Investments WW2017_1

Are you afraid to sell that property?

Clients often come to Wis, worried about their tax liability if they sell a property. They are right to worry. If you have depreciated a property for a number of years or have refinanced it and taken cash out, you can end up with “phantom gain.” Phantom gain exceeds the cash you get from the sale. However, there are many ways to reduce that gain. Interested?

If you sell a property, your taxable gain is the selling price of the property less its “adjusted basis.” (“AB”). AB is the cost of the property with certain adjustments. For example, AB is reduced by depreciation so property rented for many years may not have much AB left, creating “phantom gain”. What do you do?

 Take action: Consult a tax professional like me. I can show you how to increase the adjusted basis. For example, did you know that property that you inherited is treated as if you purchased for its fair market value at the time of the deceased person’s death? Wis added over $50,000 to AB for a worried widow, composed of the following:

* Costs of closing not deducted when you purchased the property, like transfer tax.

* The costs of closing the sale of the property.
* The cost of the property’s lot which is not depreciated.
* The cost of improvements that you made, like a new roof or appliances.
* There’s more.
If you have Wis prepare your return, he will make sure you don’t miss anything.
Posted in Real estate, investing, What's New?

Individual taxes WW 2017_1

Avoid large refunds or amounts due.
A large refund means the Government had your money all year, interest-free. A large amount due invites penalties and can be more than an inconvenience.

The tax rules are designed to give an employee a refund if the employer withholds properly. However many things can change this. For example, purchasing a house can generate deductions that in turn cause you to receive a refund. Wis can show you how to turn that refund into a larger monthly paycheck. In contrast, if you and your spouse both work, unless you adjust your withholding, you may end up owing quite a bit. Wis can get this under control. In fact, using Tax Mastery© Wis can identify unexpected tax savings that can reduce your tax bill and put more money in your pocket by decreasing your withholding or estimated taxes. For example, when can you deduct clothing worn on the job?

When can you deduct clothing as a business expense? Wis gets this question frequently. The usual answer is no! An employee can deduct ordinary and necessary expenses of doing his job. However, the Tax Court held that the cost of Ralph Lauren clothing is not deductible even though Ralph Lauren required its salespersons to wear that clothing on the job. Why? Because the clothes are personal since they are suitable for personal use outside the workplace. The Court has given you the solution. For example, Fedex pilots can deduct the cost of their uniforms as well as the cost of cleaning them.
My Advice: To deduct clothing it must not be suitable for personal use outside the workplace. If you wear a uniform or place company logos on the clothing you can probably get away with in.

Action to take: If you still don’t know if you can deduct your clothing, call and ask for a free ½ hour consultation.
Posted in Individual Tax, What's New?

Mind your business WW2017_1

Services you won’t get elsewhere. As a former in-house attorney, Wis can help you with contracts and with taxes. Wis gives you personal attention when preparing your tax return and that can save you thousands of dollars?

How does Wis differ from other tax preparers? Wis gives you personal attention instead of a production line approach. He prepares a custom Tax Mastery© plan, then discusses it with you personally before filing your return. Why is this critical? Read more.

A true story. A prominent Memphis lawyer (Harvard law) decided to try Wis out by bringing Wis a tax return already prepared by a well-known accounting firm. The return showed that the client had added a room to his home office. However, Wis found no new furniture on the return. In his interview with the lawyer, Wis found that the client had purchased $40,000 of antique furniture for that room, saving him over $14,000 in taxes! The accounting firm had used his tax organizer for the return, without interviewing the client.

My Advice: Demand personal attention.
Take action:  Try me out the way that client did, with a *FREE ½ hour Consultation*. It can save you money! 
Posted in Business Tax, What's New?

Estate Planning – retirement WW2017_1

Want to waste your retirement plan?

A favorite client recently retained me after his mother’s death to help him settle her revocable living trust (RLT). His father died shortly before. My client was the trustee and sole heir under the trust. She named him in her durable general power of attorney. The Mother’s will transferred all assets to the trust. The trust distributes its assets to the son. This should have been a piece of cake. Not this time!

The bad news. His aged mother could not manage her affairs. She inherited a large  IRA and failed to name a successor beneficiary. Using his Mother’s DPOA, my client asked the custodian of the IRA to name him as successor beneficiary but they refused because they saw a conflict of interest. Things got really expensive and could result in a heavy tax burden!

Bad news: With no beneficiary named after his mother died, her “estate” became the beneficiary. We had to open the estate in Probate Court. The whole purpose of the RLT was to avoid Probate.

Danger. Because an estate has no lifetime over which it could make required minimum distributions (RMD’s), in some cases, the IRS will distribute the entire IRA immediately, with resulting heavy taxes.

The good news. Fortunately, as a tax attorney, Wis was able to find a loophole that would allow the IRA to “stretch” the RMD’s over the mother’s life. However, there is still the expense of keeping the estate open for the distribution period and the cost and complexity of estate taxes. Wis intends to negotiate a transfer of the IRA directly to his client.

My advice: Never allow a retirement account to end up without a successor beneficiary. Retain a tax attorney to advise you regarding your plan beneficiaries. While many lawyers can draft wills or trusts, few of them can handle complex income tax issues like this.

Want to know more?  Email Wis and request a *FREE ½ hour Consultation*.

If you are ready to plan your estate, download my FREE Estate Planning Package.
Posted in Estate Planning & Probate, What's New?

Year End Business Tax Tips WW2016_11

As a former Chief Counsel and CFO, I often act as a one-stop source of tax, legal and estate advice for my small business clients. Many tax newsletters this time of year are obsessed with year-end tax planning. I will try to offer broader topics.

This time of year I am helping my small business clients with complex contracts, like business purchases and sales, buy-sell agreements, bonus and option contracts. The holiday season is also a great time to hire your children. Your business will benefit from the deduction. The kids’ earnings can be contributed to a Roth IRA to give them tax free savings.

Two of my clients are planning on selling their businesses and retiring. If you have a corporation such a sale can result in double taxation. My combined contract and tax skills are essential to minimize tax liability in this case.

Another client has an old family business but has no agreements to control what happens if one dies or decides to pull out. This situation can be like a business divorce! Feelings can run high and law suits are not uncommon. I have the right agreement that solves the problems.

Another corporate client has family members who are children of the stockholders and  who would like to own part of the business. Having experienced this situation many times in the past, I suggested a bonus and option agreement that would provide bonuses to the buyers and give them a chance to buy the stock at a fair price.

Taxwise: Hire your children over Christmas break when they have some time and save $1,000’s of tax dollars. Hint: Young folks are good with technology, so you can justify a fair salary for their services. If you do it properly you can pay your child up to $6,300 and you will save yourself $1,500 to $2,300 in federal income taxes. The child will pay no taxes if that is his only income.Top it off by contributing the child’s 2016 earnings to a Roth IRA up to $5,500. Advantages? Contributions can be pulled out free of tax at any time and up to $10,000 of earnings can be taken out tax-free by the child to buy a first home.

Contact me for more information about these strategies.

My Advice: Don’t allow the Holidays to distract you from things to do as we approach year end. Take advantage of my *Free 1/2 hour consultation* to see if I can help you.

Posted in Business Law, Business Tax, What's New?

The Best Holiday Gift WW2016_11

The best holiday gift

What is the best holiday gift for your loved ones? Save them from the stress and expense of cleaning up your estate! Trust me. Unless you have a deal with the devil, you will not die at a convenient time! In this day and age, I often run into families where the husband or wife have children of a prior marriage. In these cases, things get complicated and expensive! Without a will, the law will split an estate equally among a spouse and two children. Is that what you want?

I just opened an estate in Probate Court, and the family spent $10,000 in legal fees trying to work out who got what before we went to Court. My deceased client, who I will call Jill, had talked about updating her estate planning for more than a year before her death. By the time she engaged me to do her planning it was too late. Cancer had taken its toll and before we knew it, she was in Intensive Care and the drugs they employed to treat her robbed her of the capacity to sign the documents I prepared for her. The result? Her latest husband, of more than ten

The result? Her latest husband, of more than ten years faced an old will that was nothing like what she asked me to provide in her new revocable living trust, which she never signed. I worked with her childrens’ lawyer and negotiated a settlement, and family relations deteriorated.

My Advice: If you care about your loved ones, spare them from this pain. Keep your estate plan up to date. You can avoid wasting time and money in Probate by using a revocable living trust.

Posted in Estate Planning & Probate, What's New?

TAX WISARDRY WITH AIRBNB

So, are you an Airbnb host? Or maybe you’ve just heard the buzz and want to know more about it? Back in 2015 Time magazine said that “Airbnb is to hotels as Uber is to taxis.” As an Airbnb host, you are part of a brave new tax world, one not yet fully explored by the Internal Revenue Service. Unfortunately, this also means that many tax preparers do not understand the tax rules for Airbnb activities. For some insight into the tax rules governing Airbnb hosting read more.

MINIMUM RENTAL RULE

If your Airbnb property is your home and you rent it for less than 15 days during the year-you need not report the rental income at all.

My advice: If you can, rent for less than 15 days. Then you will need to read no further. If you want to rent out your home for more than 15 days a year–read on.

BUSINESS V. RENTAL

If your Airbnb rental is classified as a real estate rental activity for tax purposes, you’ll need to report it on your Form 1040 Schedule E Supplemental Income and Loss. Its profits will be subject to regular income tax. On the other hand; if it’s classified as a small business, then it must be reported on your Form 1040 Schedule C, Profit or Loss from Business. Schedule C income is “self-employment income” on which you pay 15% self-employment taxes (social security and Medicare) in addition to regular income taxes.

My Advice: Avoid self-employment income like the plague. Read on to learn how.

AVOID SELF-EMPLOYMENT (Schedule C) INCOME

Is the income from your Airbnb rental self-employment income? In most cases, no. However, it can become self-employment income if you act like a hotel and provide your tenants with substantial services like regular cleaning, changing linens, or other maid services. This is why, although Airbnb rentals somewhat resemble bed & breakfasts, they are not the same because an Airbnb host is not required to provide meals or similar services.

My advice: If you want to avoid the self-employment tax– avoid providing substantial services. Do not feed your tenants and don’t provide regular cleaning, changing of linens, or any other maid services.

THE TYPICAL AIRBNB OPERATION – SCHEDULE E INCOME

Let’s assume that you are an Airbnb host and you rent out rooms in your primary residence for more than 15 days per year, but you do not provide substantial boarding services.If your home is rented for more than 14 days, or 10 percent of its rental use, the IRS Vacation Home” rules apply. You must record personal and rental days and allocate deductions between personal use, reported on Schedule A, and rental use, reported on Schedule E. Rental expenses are limited. See IRS Publication 527 and consider a *FREE ½ hour Consultation* with me.

HOW TO SAVE TAXES — DEDUCTIONS

An Airbnb host is entitled to deduct all “ordinary and necessary expenses” of the rental activity. See Tax Wisardry with Rental Properties

DEPRECIATION

Expenditures that buy you assets that last more than one year (such as the building, a new roof, or air conditioning unit) are called “capital expenditures and cannot be deducted in the year of purchase. For these costs, you may take a depreciation deduction ratably over the item’s useful life. For example, the IRS specifies a 27.5 year useful life for a building used as a residential rental property. This amounts to a 3.636% deduction of the cost per year. Land is not depreciated.

My Advice:  To increase your depreciation deduction, separate the cost of items like furniture and appliances, which have a shorter useful life and so generate a larger annual depreciation deduction.

COST/BASIS

The cost (“basis” in tax language) of your rental property equals the sum of its contract price, plus certain closing costs, plus the cost of improvements. The “adjusted basis” of the property is reduced by prior depreciation deductions. See GAIN OR LOSS.

My advice:  For higher depreciation deductions and lower gain on the sale of property, be sure to add to basis all costs of improvements and appropriate closing expenses.

GAIN OR LOSS

If you sell a property, you generally will have taxed gain to the extent its selling price exceeds its adjusted basis, and if you hold a property for 12 months or more, the gain on the sale is considered long-term capital gain, which qualifies for a tax rate of 23.8% or less.

Beware of “phantom gain.” Phantom gain exceeds the cash you receive on the sale. Phantom gain often occurs if the property’s adjusted basis has been decreased by depreciation or if you refinanced the loan and took out cash.

WHAT CAN WIS DO FOR YOU?

email: Wislaughlin@gmail.com for a *FREE ½ hour Consultation.*

References:

Wikipedia on Airbnb
EYAirbnb tax guide

Posted in Real estate, investing, What's New? | Tagged ,

Real Estate, Investments WW2016_9

How can you boost your after-tax return on your real estate and other investing? Normally, a taxpayer’s rental property losses are limited to $25,000 per year or less, but a landlord can deduct unlimited rental property losses by qualifying as a “real estate professional.” A real estate professional. can take unlimited losses, but the rules are complicated. You have to qualify yourself and your activities with a loss property

Real estate pros can deduct unlimited rental losses, but must spend over 50% of their working hours and more than 750 hours per year materially participating in real estate.

Bad news for a full-time real estate agent who also owns rental properties: Even though the agent is a real estate professional he can’t deduct rental losses in a rental activity because he didn’t “materially participate” in the rental activity. To satisfy material participation, over 500 hours must be spent in the rental activity or just 100 hours as long as no one else, including non-owners, puts in more time. Use of a property manager will shoot you in the foot!

My advice: Make sure that you spend the required time working with the property and with real estate activities. If you have any questions, call Wis.

Posted in Real estate, investing, What's New?

Individual Tax Tips WW 2016_9

There is a saying about taxes that is so true: “You don’t know what you don’t know.” Taxes are so complex that you don’t even realize that you are missing something. For example, two of my clients have a “marriage made in heaven”: they are both Fedex pilots married to each other. I help this couple find all of their deductions, select which is best: joint status versus married filing separately, and find strategies to avoid the alternative minimum tax.

This couple lives in Alabama where they pay state income taxes. Pilots have employee expenses that are deductible as miscellaneous deductions. I use checklists to help these clients find all of their deductions. For example, we deduct required testing and ratings, at least a portion of cell phones and home computer used to keep up with job information. I put them in touch with specialized companies that easily and inexpensively calculate per diems that these pilots can deduct in excess of what Fedex reimburses.

This couple has other challenges. They have high incomes and their incomes are close in amount. In that case use of joint status may be best in some years and married filing separately may be better in others. My professional Proseries software compares their tax bill both ways.

Finally, pilots who live outside of Tennessee often pay state income taxes. The combination of state income taxes and miscellaneous expenses often leads to the dreaded alternative minimum tax. What do you do? Well, again, adding my knowledge of the tax law as a tax lawyer to my use of Proseries, I advise these clients how to avoid the AMT. For example, the AMT does not affect charitable deductions.

My Tax Mastery© provides these clients with an understandable road map to take control of their taxes Am I too expensive? They don’t think so!

Take Action: So if you are wondering if you don’t know what you don’t know, find out with no risk. Try my*
FREE 1/2 Hour Consultation:* Find out how to save some taxes, then lower your federal tax withholding and increase your take home pay.

Posted in Individual Tax, What's New?