A lot has happened this year in the real estate market and the general economy. It impacts the portfolio of many Real Estate Investors – The value of our assets, how we want to invest in coming years, and even the tax law changes. It also impacts 2017 tax issues that will be confronting us in the upcoming tax filing season.
Tax preparation for the April 15th tax deadline is merely tax compliance as opposed to voluntary tax reduction planning. December 31st is the true tax savings deadline. Some of the best tax-reduction moves really need to be done by mid-November or early December. They often take some advance planning. Getting a head start now could make you a lot happier in April, giving you a bigger refund or a smaller check to write to Uncle Sam. You can either pay the IRS, pay a tax preparer, or pay a qualified CPA to come up with some tax reduction strategies.
TOP TEN YEAR END TAX PLANNING CHECKLIST
INDIVIDUAL TAX RETURN CONSIDERATIONS
#1: Pay your state and local income taxes, maybe even overpay, before year-end. It will be deduction for you in 2017. You’re not going to be able to deduct your state and local income taxes after 2018. Both the House and Senate agree that this deduction will go away after 12/31/17.
#2: If you have medical expenses in excess of 7.5% of your adjusted gross income, pile on this year! It’s not certain if you’ll be able to deduct medical expenses. The House says no. The Senate says yes.
#3: Pay and prepay your property tax in order to get the deduction. Your property tax will be limited to $10,000 per year. For many parts of the country, that won’t be enough. Both the House and Senate agree on this. Even if your property taxes are less than $10,000 per year, this may be the last year you itemized due to the increased standard deduction and reduced number of items you can deduct.
#4 If you bought or sold property in 2017, have you considered the impact of capital gains, adding rehab expenses to the basis of the property, and whether the holding costs (mortgage interest, taxes, and insurance) are deductible in 2017?
PARTNERSHIP (MULTI-MEMBER LLC) TAX RETURN CONSIDERATIONS (Applies to tax years 2018 and beyond)
The new partnership audit rules will require partnerships to take certain measures to come into compliance with the new rules, some of which may be addressed in the partnership agreement. Please note that most of these can be addressed by updating your partnership agreement. However some of these rules have be done at the time of the audit. It is not necessary to update your partnership agreement before year end but its important to note that these changes will need to be made in 2018 prior to the filing of the 2018 tax returns in 2019.
#5 Designating a Partnership Representative. The proposed regulations require a partnership to designate a Partnership Representative (“PR”) for tax years beginning after 2017 (or, if the new regime is elected earlier, then at that time). Similar to the Tax Matters Partner (“TMP”) under the TEFRA rules, a PR is the point of contact between the entity and the IRS. Also like the TMP, a PR may bind the partnership. Unlike the TMP, however, a PR may bind all partners to the conclusions of an audit proceeding. Moreover, unlike a TMP, a PR may be a non-partner, as long as the PR has a substantial U.S. presence. If a partnership fails to designate a PR, IRS may do so on its own initiative. Therefore, a partnership should designate a PR or, at a minimum, determine the procedures for designation.
#6 Preparing for an Opt-Out Election. For those eligible partnerships that prefer to opt out of the new audit rules, an election must be made annually with the filing of the partnership return. In such case, the partnership may consider specifying in the partnership agreement its intent to make the election. In drafting such a provision, the partnership may consider the impact of S corporation partners and the need to secure their agreement. Moreover, any agreement may be set up to avoid ownership by those which would make the partnership ineligible to opt out, such as other partnerships, trusts, disregarded entities and nominees. Partnerships currently ineligible to opt out because of their structure may consider whether to restructure their ownership.
#7 Preparing for a Push-Out Election. Partnerships that either cannot opt out or prefer not to opt out of the new rules may elect to push adjustments out to its reviewed-year partners. In such a case, it may be advisable for the partnership agreement to specify such intent and direct the PR to make a push-out election. A partner entering or exiting a partnership should consider the tax implications of any existing and future tax liability resulting from the partnership’s election to push out any imputed underpayment.
#8 Preparing to Modify the Imputed Underpayment. A partnership that makes neither an opt-out nor push-out election may want to modify any imputed underpayment amount as permitted under the proposed regulations. In such case, it may be desirable to specify in the partnership agreement that impacted partners will provide any necessary documentation or file amended returns as needed.
#9 If you generated any kind of active real estate income, have you considered restructuring your business to minimize the impact of self employment taxes?
#10 If you have significant real estate education expenses, have you registered a business in order to minimize your audit exposure on deducting these expenses
WE WILL BE UPDATING OPERATING AGREEMENT FOR ALL WEALTH BUILDING PLAN CLIENTS IN 2018. IF YOU ARE NOT A WEALTH BUIDLING PLAN CLIENT AND ARE INTERESTED IN HAVING YOUR OPERATING AGREEMENT UPDATED, PLEASE FILL OUT THE FORM BELOW AND WE WILL SEND YOU THE INFORMATION AND PRICING
As a new or seasoned real estate investor, are you getting the best tax advice? Let me evaluate your financial and tax situation, then develop a customized year end tax strategy just for you. Together, we will come up with a strategic plan designed to answer your questions as you build your own customized wealth-building plan.
I am not just your average CPA. I am also an active investor. My reputation has been built through years of experience and innovation in creating tax strategies. By offering tax compliance and planning for top real estate investors in the Washington Metro area, I know what the rich are doing to create, protect, and preserve their assets. All of us have a responsibility to pay tax but none of us should pay more than our share. The tax laws are complex. Most of us do not have access to the kind of information that will allow us to use these loopholes that all taxpayers are entitled to. My personal goal is to educate individuals and corporations on how to keep more of what they make.
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