Tax Tips For AirBnB Hosts: Part 1

 

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The peer-to-peer or “sharing” economy has made it easier for individuals to pick up some extra cash. One of the most popular peer-to-peer platforms is Airbnb. Guests get to stay in a private home anywhere in the world, and hosts reap the benefits of the extra income.

If you’re considering renting out your home to Airbnb guests, there are some tax implications to be  aware of before diving into your host role. Keep these tips in mind so you don’t run afoul of the IRS.

The 14-day rule

Simply stated, the 14 day rule stipulates if you rent out your home for 14 or fewer days throughout the year, you don’t have to report the income to the IRS or pay income tax on those earnings.

At the same time, you must also utilize the property for your personal use at least 10% of the total days that you rent out the property.

Same goes for if you’re renting out a room. Keep it under 14 days, and you won’t have to report the income.

The downside to the 14-day rule? You also can’t take any tax deductions for any expenses incurred during the rental period. If you rent out your home for 7 days on Airbnb and decide to make some minor improvements to the property, you can’t deduct those expenses on your tax returns.

File that W9

If the rental company doesn’t offer you a w9 form when you initially agree to become a host, you can download one here. Fill it out before hosting your first guests and return it to the company office.

The rental company could withhold up to 28 percent of your earnings without it, so it makes good business sense to file your W9; your overall withholding will end up being more reasonable than the 28 percent you’ll pay without filing a W9.

Deduct those guest-service fees

Rental companies such as Airbnb, FlipKey and VRBO charge guests a percentage of the rent as a guest services fee or host service fee.

When you receive your 1099 at the end of the year that states your rental earnings, you will also see the total amount of guest-service fees. Be sure to deduct this amount from your rental income on your tax returns.

Part 2 on Friday will cover more tax tips for Airbnb hosts.

 

Reporting Tips To The IRS

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Most of us at one point in time or another pick up a side job. With the pressures of bills or emergency expenses facing us, it makes sense to earn some extra income.

If your side job also includes receiving tips from customers, it’s important to understand the “hows” and “whys” of reporting tip income.

The IRS requires taxpayers to report ALL income, including tips. You are required to report your tips if:

  • You earn more than $20.00 in tips. Report the initial $20.00 plus anything over and above that amount.
  • Tips are not included as a required gratuity or service charge instituted by your employer.
  • If you have a slow month and don’t earn $20.00 in tips, you don’t need to report any tip income you do receive, as long as it is under the $20.00 threshold.

If your employer has attached an automatic gratuity or service to their price structure, you do not need to report that gratuity, even if your employer distributes the service charge or gratuity to you and other employees.

For example, if you’re have a side job as a limo driver and your employer adds a 5% gratuity to their rates, you do not need to report your share of the gratuity as tip income.

On the other hand, if at the end of the night, your customer tips you $50.00 for a job well done you will need to report the cash tip.

Tips can also be in the form of credit card charges, cash, gift cards, transit or event passes, and other gifts instead of cash. You do not need to report the value of non-monetary tips.

How to report your tips

You will need to get the IRS 4070 form from your manager, payroll department or HR department. Fill it out with all the required information  and return it on or before the 10th of each month.

Your employer will then take the standard deductions for taxes and social security just as they do for your regular pay.

Why to report your tips

As with any tax matter, the IRS will assess penalties for withholding or under-reporting information, especially your income.

While it may be tempting to not report your tips in order to get caught up on expenses or to save for a vacation, it is essential that you report tip income.

If you choose not to report your tip income, you could face penalties and fines for failure to report all of your income. Consequences can include a penalty equal to 50% of the applicable payroll taxes on the tips. This penalty will be in addition to any unpaid taxes you owe.

In addition, accurately reporting your tips will ensure that you receive the correct amount of Social Security and Medicare benefits once you become eligible.

Keep accurate records of your tips since you will also need to report them at the end of the year when you file your tax return.

Fill out the IRS 4070 form, and return it to your manager or payroll department on the 10th of each month. Doing so will ensure that you are accurately reporting your income to the IRS.

 

New (Tax) Year’s Resolutions

Untitled design(3)As 2015 winds down, tax season is gearing up. Here are some great ways to make sure things are looking up for you tax-wise in 2016.

1. Resolve to e-file

Electronically filing your tax return, or e-filing, has its rewards. No lost paperwork in the mail, no IRS employee errors as they manually process your return, and a faster turn-around for refunds. By e-filing your return, your information is transmitted directly to the IRS. A tax pro can e-file on your behalf, or you can take the DIY approach with many of the e-filing options available to consumers.

2. Know what you’ll owe

If your income changes considerably in 2016, chances are you’ll be facing a higher tax bill for 2016. Income sources such as bonuses, IRA distributions, purchase contracts, settlements, and certain gambling winnings can all nudge you into the next highest tax bracket.

Prepare in advance, if you can, by setting aside enough money in your savings account to cover the increased tax bill. By doing so, you’ll lessen the “sticker shock” on tax day, and can take care of your tax bill in one lump sum. By doing so, you’ll avoid penalties, fees, and possible hassles in dealing with the IRS.

A qualified tax pro can be of great help at a time like this, and can advise you in taking the steps necessary to address your higher tax bill in 2016.

3. Ask for help

If you’re facing back taxes, IRS collection actions, a large tax bill, or any other serious tax matter, 2016 is your year to ask for help. Very few people are equipped to wade through IRS tax code and to interpret and apply those regulations to their own tax scenario.

Enlisting a qualified tax pro to help you assess your individual tax matter can pay dividends in terms of peace of mind and a clearer idea as to what the IRS is requesting from you. A tax pro will help you understand complicated IRS tax code as it applies to your circumstances, and can advise you of the best course of action to take in dealing with the IRS.

The end of 2015 doesn’t have to mean the start of tax headaches in 2016. By e-filing, understanding how much you’ll owe and asking for help,  you can get ahead of the stressed-out masses waiting til the end of 2016.

By resolving to get a fresh start in the new tax year, your tax outlook for 2016 could look much brighter.

If you’re facing a serious tax issue, resolve to take charge by calling us at (888) 224-3004 or by clicking the white “Start Chat” button at the top of our homepage. We have qualified tax pros on staff who can help you make sense of your back taxes, IRS collection, or other serious tax matter.

The New Tax Year Resolution You Must Make Right Now

calculator-1019743_1280Ignoring that past due tax debt will get your new year off to a stressful start

2015 will be history in a matter of days. If looking back on 2015 also includes an outstanding tax debt, addressing that tax debt needs to be at the top of your New Year’s resolutions list.

Penalties and fees

If you have not  yet paid your 2014 taxes, you’ve been racking up penalties and fees for each month of non-payment. The IRS assesses a non-payment penalty of 1/2 of 1 percent of the balance for each month after the initial due date. It may not sound like much, but it can penalties can add up to as much as 25 percent of the balance due.

That’s a lot if you’re on a tight budget, and penalties can add up quickly, not to mention past due notices from the IRS.

Don’t panic, and don’t ignore the IRS

Don’t assume the IRS will forget about those outstanding taxes, because their role is to collect tax payments from citizens. If you’re ignoring their written notices in hopes the IRS will forget and move on, it will never happen.

The IRS will become more aggressive with each passing month of non-payment. Regardless of where you are in this collection cycle, the IRS won’t forget. If you are facing asset seizure for non-payment of past due taxes, you need to take action immediately to protect your bank account and other assets.

Your best defense against the IRS

The bad news is you owe back taxes. The good news is that there are tax professionals who can help you. A qualified tax pro can determine if you’re eligible for an installment agreement, Offer In Compromise or Currently Non-Collectible status. A tax pro such as an Enrolled Agent or tax attorney can represent you in negotiations with the IRS.

One key advantage to hiring a tax pro: they know the complex IRS tax code inside and out, so you won’t have to. A qualified tax pro will also ensure your rights are upheld throughout the collection proceedings. They will also explain each step to you in terms that you can understand.

You won’t hear jargon or “legalese,” but you will hear an honest assessment of your financial circumstances and your options. Your tax pro can work with you in arriving at a payment arrangement you can live with over time.

If you’re facing 2016 with an outstanding tax bill, now is the time to take charge and take back your life. We have qualified tax pros on staff who can help you sort out your options, negotiate on your behalf with the IRS, and advise you every step of the way. Even better, they can translate that complex IRS jargon that might be difficult to interpret and understand.

If you’re ready to face 2016 with a clear plan of action, give us a call today at (888) 224-3004. You can also chat with us by clicking the white “Start Chat” button at the top of our homepage.

Either way, you don’t face to face past due taxes alone. We can help.

 

 

 

When Hard Times Hit Close to Home: Short Sales and Your Taxes

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Although the economy is showing signs of life is most parts of the country, there are still some consumers struggling to regain financial footing lost in the recession. Plunging home values, long stretches of unemployment and ongoing under-employment can wreck havoc on your finances. If you’re contemplating a short sale of your home, there are possible tax implications.

What is a short sale?

Let’s assume your mortgage balance is $500,000 and you can no longer continue to make your mortgage payments. Your lender agrees to allow you to sell your home for $450,000, which is $50,000 less than your loan balance. Once the sale is complete, you’re out from under your mortgage and your home.

What will happen next?

The mortgage company or lender cancels the remaining $50,000 as part of the short sale. They will issue a 1099-C Cancellation of Debt form to you at the end of the year, and you will need it to file your taxes.

How will it affect my taxes?

Typically when a debt is cancelled (e.g. car loan, credit cards) you’ll need to claim the cancelled debt as income. For example, if a credit card company cancels an old $5,000 credit card debt, you’ll need to declare that $5,000 as income on tax day.

In theory, the same rule applies for any cancelled mortgage debt due to short sale or foreclosure. However, there are two key  exceptions to that rule:

  • Insolvency: If your debts (liabilities) exceed your assets, you’re considered insolvent and the cancelled debt is exempt from being taxed as income.
  • Bankruptcy: If the short sale was discharged through a bankruptcy, it isn’t considered taxable income.

Dealing with a short sale is complex, even for the most financially sophisticated consumer, so if you’re contemplating a short sale or if you’ve already had a short sale of your home, it’s time to enlist a tax pro who can advise you based on your individual income circumstances and tax scenario.

He or she can provide valuable input regarding the changes in your tax scenario and  how to reduce your overall tax liability.

If you’re facing IRS collection or any other serious tax matter, we have tax pros on staff who can help. Get started today by either giving us a call at (888) 224-3004 or by clicking the white “start chat” button on our homepage. Don’t go it alone. We can help.

Don’t Overlook Last-Minute Deductions

paperwork-1538658-1279x852(1)Wrap the year up right by getting a jump on tax day planning

Part 4 of 4

By now, you’ve become familiar with some tax breaks that you hadn’t thought of before. In part 4 of this series, we’ll take a look at even more tax breaks. 

As with any tax matter, it’s best to check with a licensed tax professional with any questions regarding your eligibility for a specific tax deduction. 

1. Accounting and tax prep fees: If you paid for tax prep software or paid a tax pro to prepare and file your taxes, you can deduct any fees associated with that service. 

You may also deduct any fees associated with representation during an IRS audit or for any other tax-related matter. 

You would list these fees under “miscellaneous deductions” on  the Schedule A attachment for your federal tax return. 

2. Substance abuse treatment: These costs can be deducted under the “medical and dental expense” portion of schedule A. 

3. Legal fees connected to alimony: While you can’t deduct all of the legal fees associated with divorce, you can deduct the portion of legal fees that were associated with either receiving or paying alimony. 

4.  Mortgage prepayment penalties and late fees: If you paid off your mortgage early and were hit with a prepayment penalty, you can deduct that penalty under the “mortgage interest” portion of Schedule A. 

If you made any late mortgage payments, you can also deduct your late payment penalties under “mortgage interest. 

5. Personal liability insurance: If you must carry personal liability insurance as part of your employment or business, you can deduct any premium costs that are not reimbursed by your employer. 

As with any tax matter, it’s best to check with a licensed tax pro regarding your unique tax scenario. You’ll need to meet certain income percentage guidelines to claim most of the deductions mentioned in this series. 

Getting an early start to end of year tax planning will save you time and headaches in the long run.

If you will be claiming any itemized deductions for the tax year, be sure to keep any receipts or records connected with your deduction(s).

You’ll need them to prepare your tax return and you’ll  also need to keep them beyond tax day in the event your return is selected for an audit. 

 

 

 

 

5 More Overlooked Tax Deductions

freeimages.com
freeimages.com

Make the most of these overlooked deductions

Yesterday’s post discussed five of the most easily missed tax deductions. Now is a great time to review your receipts and records to see if you qualify for any of these tax deductions.

Hang on to those receipts, however. You’ll need them on tax filing day, and as proof of eligibility for a given deduction should you ever be audited.

As with any deduction, be sure to check with a licensed tax preparer regarding your eligibility for any itemized deduction, especially if this will be your first year claiming that deduction.

IRS tax code is complicated, and a qualified tax pro will be able to assess your unique tax scenario and also determine whether or not you are eligible for these deductions.

1. Education expenses: Education doesn’t come to an end when you receive your diploma or degree. Enrolling in college courses that are specific to your skill set or to train for a new career is a good strategy in today’s economy.

Eligible expenses include books, tuition, fees and supplies not covered by financial aid, scholarships or tuition reimbursement through your employer.

2. Safe deposit box fees: Be sure to keep track of monthly or quarterly safe deposit box fees; you can deduct them at the end of the year.

3. Foster care expenses: The IRS defines a foster child as a child who is placed with you through a court order, judgement, or by a licensed private or government foster care agency. Unreimbursed foster care expenses are also tax deductible.

4. Lead paint removal: If you’re planning on getting rid of the lead paint on that old house you just bought, good news: lead pain removal expenses are tax-deductible.

There is a catch, however. In order for it to be a qualified expense, the lead paint removal must be for the purposes of preventing a child from eating or otherwise consuming the lead-based paint.

The surfaces must also be in bad shape, and be within easy reach of a child who already suffers from lead exposure. In other words, if your child tested positive for lead exposure due to lead-based paint in your home environment, you do have a shot at deducting the paint removal costs.

IRS code relating to this deduction is complicated, so if you will be removing lead-based paint from your current home or a home you just bought, be sure to check with your tax advisor regarding this deduction.

5. Medical travel expenses: If you or a loved one are ill and need to travel out of town for medically necessary treatment, hold onto to all of your travel and lodging receipts.

 

5 Most Easily Overlooked Deductions

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Make the most of the deductions available to you

As the tax year winds down and as the holidays gain momentum, it’s easy to put off thinking about serious matters such as taxes. After all, there are holiday parties to attend, office parties to live down, and visits with friends and family foremost on your list. Once the holiday season is over, however, tax season will be here before you know it.

You might think of tax deductions as something only high-income earners need to worry about, but there are plenty of deductions available for taxpayers of all income brackets. Here’s a look at some of most easily overlooked deductions:

1. Casualty or theft losses: If you lost property in a disaster or via burglary or theft, note it on your tax return. Let’s say you use your car to drive for Uber or Lyft. Your car is totaled in an accident, including some of the contents. You’ll need to claim this deduction on the Schedule A attachment on your federal tax return. The rules surrounding this deduction are complex, so it will be in your best interest to seek the advice of a tax pro.

2. Cell phone: You can claim this deduction only if you use your cell phone for business purposes. Keep copies of your cell phone bill, and note which calls/text charges are business-related. You’ll need these figures at tax time when calculating your deduction.

3. Contacts, glasses, or hearing aids: Your new contacts and back-up glasses may have cost you a fortune, but you can deduct most of the cost at the end of the year by using the Schedule A attachment on your tax return.

4. Fees for prepared childbirth classes if part of pre-natal care: Kids are expensive, even before they arrive. Claim this cost under medical/dental and keep a copy of any documentation verifying medical necessity or completion of the course. You can only deduct any medical/dental costs not covered by insurance, so this won’t work if your insurance company covered the cost of your childbirth classes.

5. Union dues: You can claim your union dues as a deduction, but be sure to keep any documentation that verifies you paid them or they were deducted from your paycheck.

Tommrow: 5 more of the most easily overlooked tax deductions

 

 

 

5 Reasons Why You Should Have a Pro Do Your Taxes

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Hiring a tax pro will save you time and money

No one relishes the thought of preparing their own tax return each year. While there are lots of DIY software and apps to choose from, they may not be enough if you’ve experienced significant changes to your tax scenario this year, or if the thought of preparing your own taxes makes you break out in a sweat. You may also benefit from a tax prep pro if:

  • You’re just not good with numbers.
  • You’re busy and short on time
  • You started a freelance business or freelance side gig
  • You got married, had a child, or divorced during the tax year
  • You bought your first home
  • You’re dealing with student loan interest

The bad news? You’ll need to pay to have your taxes done, but the good news is that you’ll save money in the long run. Here’s why:

  • Your tax prep pro will file an accurate return on your behalf. You won’t need to worry about making a mistake on your return
  • He or she will be familiar with the deductions available to you, from the standard deduction all the way to complex itemized personal and business deductions. This can save you money in the long run as each deduction will lower your overall tax liability.
  • He or she understands IRS language and U.S tax codes as they apply to you. That alone would be reason enough if the thought of perusing the IRS website for tax information gives you a headache.
  • He or she has the time to explain tax matters to you in a way that you’ll understand. Most people get confused by the difference between a tax credit and a tax deduction. Your tax pro knows the difference and will be happy to explain it to you.
  • They interpret tax codes for a living so you won’t have to.

Finding a Qualified Tax Prep Pro

Asking for personal recommendations from friends and neighbors is a start. Google and Yelp are also excellent tools. If you’re in the Orange County, CA area, give us a call at (888) 224-3004. We can help you find someone in the local area that you can trust with your tax matters.

If you’re facing big changes this year such as marriage, birth or adoption of a child, or any other key life change, your tax scenario will change as well. Hiring a pro to do your taxes takes the burden off you, so you can go about your normal routine.

You’ll get an accurate return in exchange, along with explanations of any tax matter that is important to you. A tax prep pro is your partner in preparing an accurate and timely return every year, saving you time and money in the long run.

Last-Minute Deductions You May Have Forgotten About

Freeimages/Paige Foster
Freeimages/Paige Foster

The 2015 calendar year is winding down, which means your tax year is also coming to a close. If you’re scrambling to think of last-minute credits or deductions, here are a few to jump-start that process:

Student loan deduction: If this is your first post-college tax year, chances are you’ve started making payments on your student loans. The good news is that you can deduct the interest on those payments at the end of the year. Even better: you can still deduct the interest even if your parents are making the payments on your behalf. As long as you’re not being claimed as a dependent on you parents’ return, you can claim up to $2500.00 of student loan interest without attaching Schedule A, Itemized Deductions to your return.

Your student loan servicer will issue a 1098-E, or the Student Loan Interest Statement. If you have multiple loans, make sure each servicer sends you the 1098-E. They typically send them out no later than the end of January, so you should be good to go by February.

By deducting student loan interest, you could end up paying less in taxes in the long run since your taxable income will be less.

Job search expenses: If you landed a new job within the same industry, your moving expenses may be deductible. Here’s an example of some of those costs:

  • Phone calls
  • Postage for snail mail
  • Career placement services
  • Resume printing and copying
  • Lodging and travel expenses associated with out of town interviews
  • Relocation expenses related to your new job, provided your new residence is at least 50 miles from your current residence

There is a catch, however. These expenses must exceed 2 percent of your Gross Adjusted Income (AGI) in order for you to take the deduction. If you can claim the deduction, you can itemize these expenses under the “miscellaneous expenses” portion of the Schedule A attachment on your tax return.

Medical/Dental: If you had a lot of out-of-pocket medical/dental expenses this year, now is the time to deduct them. Same goes for any HSA contributions you made this year.

These are just a few of the last-minute deductions you can grab at the end of the year while preparing for tax season. Be sure to organize all records and receipts associated with these expenses, so you’ll be able to file an accurate return, or so your tax preparer can file an accurate return on your behalf.

As with any tax deduction, check with your tax preparer to see if you are eligible, as each person’s tax scenario is unique.