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Tax Tips
- 1. Capri M. Truvillion, MBA THIS IS NOT A CE COURSE
- 2. Housekeeping
- 3. REALTORS Most real estate agents and brokers receive income in the form of commissions from sales transactions. You're generally not considered an employee under federal tax guidelines, but rather a self-employed sole proprietor, even if you're an agent or broker working for a real estate brokerage firm. This self-employed status allows you to deduct many of the expenses you incur in your real estate sales or property management activities. Careful record keeping and knowing your eligible write-offs are key to getting all of the tax deductions you're entitled to.
- 4. How does the PATH Act affect you? • The Protecting Americans from Tax Hikes (PATH) Act provides real estate agents and brokers some additional relief when it comes to business-related purchases by making changes to the IRS Section 179 deduction. Enacted in 2015, the PATH Act allows you to immediately deduct all or a greater portion of your purchase, which means bigger savings at tax time. • For example, you can expense, or write off, up to $25,000 of the price of a new car for the tax year in which you bought it. There are certain limits to the type of vehicle that qualifies for this tax break, however, as well as limits to the amount of the allowable deduction.
- 5. Classifications Employees • Set hours • Pay period • W4- employees withholdings • Taxes withheld • W2 Independent Contractors • No Set Hours • No Pay Periods • W9 – request for taxpayer information • NO Taxes withheld • 1099
- 6. REALTOR Revenue -GCI = $9,000 -Send a CDA Follow Instructions & Cut Checks YOU = $5760 KW = $3240 Receive $5760
- 7. Report to IRS Issued 1099 = $5760 File Taxes = $3240 1099 = KW $9000 File Taxes = $5760
- 8. Realtor Filing • Revenue • Annual GCI from your Broker – issue 1099 • W-2 • Employer • CAN NOT USE LAST CHECKSTUBS • Track Other Income • Cash App • Stripe • Square • Venmo • Unearned Income • Dividends • interest
- 9. Allowable tax deductions you need to know • Take advantage of every tax deduction you can. Even minor costs can be deducted, and they don't have to be critical to your business to count. • Here are some of the most common real estate agent and broker deductions: • Marketing: sales and open house signs and flyers; website development and maintenance; business cards and mailers • Real estate coaching, training, and education costs • Real estate licensing and renewal fees • Real estate association dues, multiple listing service (MLS) dues and brokerage desk fees • Transportation: automobile maintenance and repairs, gas, mileage, auto insurance, parking and new car purchase or lease costs • Travel airfare, lodging, and meals for real estate education and business purposes • Home office expenses, whether you rent or own your home • Gifts ($25 deduction limit), entertainment, and other costs you incur to please clients and keep them coming back to you for their real estate needs Keep in mind that to qualify as deductible, real estate business expenses must be: ordinary and necessary, directly related to your business and a reasonable amount. IRS Publications 463 and 535can help you determine whether a specific expense is tax deductible.
- 10. Expenses
- 11. CFU’S
- 13. Car – 2 Options 1. Mileage: $.58/mile Mileage IQ App 17,000 miles 2. Maintenance $2,500 Which one should you choose?
- 14. Home Office 100 sqft 1500 sqft Mortgage: $1200/mth Utilities: $3200/year Lawn: $360/year
- 16. Education An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: American opportunity tax credit (AOTC) Lifetime learning credit (LLC)
- 17. • The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you. • The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you. Who is an eligible student for AOTC? To be eligible for AOTC, the student must: • Be pursuing a degree or other recognized education credential • Be enrolled at least half time for at least one academic period* beginning in the tax year • Not have finished the first four years of higher education at the beginning of the tax year • Not have claimed the AOTC or the former Hope credit for more than four tax years • Not have a felony drug conviction at the end of the tax year *Academic Period can be semesters, trimesters, quarters or any other period of study such as a summer school session. The schools determine the academic periods. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period. AOC- American Opportunity Act
- 18. The lifetime learning credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return. LL = Lifetime Learner Credit Who is an eligible student for LLC? To be eligible for LLC, the student must: • Be enrolled or taking courses at an eligible educational institution. • Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills. • Be enrolled for at least one academic period* beginning in the tax year. *Academic Period can be semesters, trimesters, quarters or any other period of study such as a summer school session. Academic periods are determined by the school. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.
- 20. Charitable Contributions What is the Maximum Charitable Donation Limit Per Year? • This is where things get a bit tricky. There are maximum IRS charitable donation amounts, but they are a percentage and not a defined dollar amount. The percentages are based off what you donate and who you donate it to, with a maximum qualified charitable contribution of 60% of your adjusted gross income Are All Donations Tax Deductible? • No. The IRS only allows you to deduct donations from your taxable income if the donation was made to a qualified tax-exempt organization. 501(c)(3) organizations are included, but other types of orgs are as well. Make sure you do your research to determine if the organization is tax exempt. The big exceptions are that contributions made to political campaigns or organizations or for-profit organizations are not qualified charitable contributions, and are not tax deductible.
- 21. Can you Deduct Charitable Contributions if you Don’t Itemize your Taxes? • In order to deduct a charitable contribution, you must itemize your taxes. THIS. IS. HUGE. • With increased standard deductions, very few American taxpayers will itemize their taxes, and opt for the standard deduction instead. If you take the standard deduction, you can’t deduct charitable contributions. Charitable Contributions
- 22. The Republican Tax Reform Impact on Charitable Deductions • This will dramatically reduce the number of itemized filers, which will reduce the incentive to make charitable donations (but you still should, because you’re a good person and stuff). 2019 and 2020 standard deductions are: • $12,200 for single filers • $12,200 for married, filing separately • $24,400 for married filing jointly • $18,350 for head of household Charitable Contributions
- 23. Retirement • SEP • Self-Employment Plan • Mutual Funds • Annuities • Stocks
- 24. 1031 Exchange The term 1031 Exchange is defined under section 1031 of the IRS Code. (1) To put it simply, this strategy allows an investor to “defer” paying capital gains taxes on an investment property when it is sold, as long another “like-kind property” is purchased with the profit gained by the sale of the first property. Primary Residence: minimum 5 years
- 25. Are Prepared for 2020 Taxes? • Track Mileage • Mileage IQ app • Set Up Quickbooks • Documentation • Retirement Contribution • Charitable Contribution Call CAPRI M. TRUVILLION, MBA @RealtorTaxExpert Facebook and IG
- 27. Upcoming Courses NO COURSES: July, November, December ØMarch = Price it Right, Get it Sold ØApril = Guest Panel with Reps From DPAs ØMay = 1-4 Contract EXPLAINED ØJune = Legal 1 and Legal 2 ØAugust = How to Conduct an Effective Buyer Consultation ØSeptember = Contract to Close ØOctober = Pros and Cons of USDA Loans