Tag Archives: tax season

Tax Season Is Around The Corner

Summmit Mountain Rentals has an amazing blog on their website to help renters and homeowners. A great post for this time of year is their “A Step-by-Step Guide to Vacation Rental Taxes”. It is important as an income property homeowner to know what steps to take this tax season. 


A STEP-BY-STEP GUIDE TO VACATION RENTAL TAXES

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Mark Waldman13 Apr 2016Homeowner KnowledgePost a Comment

It’s that time of the year again: taxes. For vacation rental property owners, that getaway property in the mountains (or near the beach, etc.) does add another level of complexity to your overall tax picture. And if you’re thinking of buying a vacation property, it’s important to understand the ins and outs of vacation rental taxes, whether you’re planning to manage the unit yourself or work with a property management company like Summit Mountain Rentals.

Here’s an overview of vacation rental taxes in our area, specifically Breckenridge, Blue River and Frisco, Colorado. The good news is that with some foresight and planning — and as with all taxes, not waiting until the last minute to prepare and file — it’s all manageable.

Lodging and/or Business License
Most cities and towns require some form of this. Here’s how it breaks out for the towns where we manage vacation properties:

If you’re working with a property management company, let the town know and they will not bother you; your management company should handle this payment from your account. If you’re managing your property yourself, make sure you keep your license up to date by paying your fees annually.

Sales Tax: State, County and City
Collecting and paying sales tax is crucial. Why? Simply put, not doing so is a crime. Whoever is collecting the rent and taxes for your property should be responsible for making the tax payments to the governing bodies. State, county and city taxes all vary from area to area — as due the schedules for filing them — but the basic process for handling them is the same.

Here are the combined sales tax rates (including state, county, city and any applicable lodging taxes) for our area:

Summit County and State of Colorado taxes can be remitted together here.

Property Tax: County
Depending on how your loan is structured, this is either paid directly by the owner or paid by the mortgage company as part of an escrow account. With this type of loan, homeowner insurance payments are often part of the loan package and paid by the mortgage company as well.

Whether paid by the owner or mortgage, property taxes typically fall within the responsibilities of the owner. One exception: We do have some owners who live outside of the United States, and it’s much simpler for everyone if we pay their property taxes out of their account.

Income Tax: IRS and State
Most people who’ve ever filed taxes for a business know how this works — and your vacation home is, essentially, a business:

  • By the end of January, your property management company will provide you a 1099-MISC form showing all your rental revenue for the previous tax year. The company is required to submit a copy of the 1099 to the IRS. Make sure you get a summary of expenses as well.
  • If you’re managing your property, you should have complete records of all your rental income and expenses.
  • Using the income and expense records, complete IRS form Schedule C (Form 1040), Profit or Loss From Business and submit with your federal tax returns. The total profit or loss from this form will be included on your state return as well.

Of course, a good property management company will be familiar with all of this and be able to help you every step of the way. But if you’re doing it yourself — and despite your best intentions, at the last minute — we’re happy to help. You can call me directly for advice at no charge:

Mark Waldman, Owner, Summit Mountain Rentals, 970-423-7382

6 IRS Audit Triggers and How to Avoid Them

Tax season is around the corner and RealorMag is here to help with useful tips on how to avoid an audit. 


6 IRS Audit Triggers and How to Avoid Them

Use these tips for keeping better track of your business expenses. 
NOVEMBER 2016 | BY QUICKBOOKS SELF-EMPLOYED

The end of the calendar year is approaching, with another tax season around the corner. For real estate agents, this can be a time fraught with worry. Your tax return is probably more complex than your neighbors’ returns. Maybe you haven’t done such a great job of keeping track of your business expenses — or separating them from your personal expenses. Does that make you vulnerable to an IRS audit? It may if you’ve done anything to trigger a warning for the IRS. Here are 6 triggers to avoid:

1. Failure to file quarterly taxes. Very likely, your neighbors’ employer withholds federal, state, and FICA (Social Security and Medicare) taxes for them. It’s your job to set aside the money for your own taxes and pay the IRS (and possibly your state) each quarter. Not paying your quarterly taxes, or payments that are late or too small, can result in penalties and additional interest owed. It can also raise a red flag for the IRS. Use the IRS’s 1040 ES to determine the appropriate amount to withhold.

2. Unreasonable deductions. The IRS knows from experience that sole proprietors aim to minimize their earnings and maximize their deductions. But try to deduct expenses that aren’t necessary for your business — like declaring the full cost of your backyard pool installation as a business expense — and you may raise a red flag. Expense only what you legitimately use for your business, and keep current on what the law allows (such as the $25 limit on deductions for business gifts).

3. An unlikely home office deduction. Your home office deduction should be based on the percentage of your home used exclusively for the purpose of conducting your business. This means your dedicated space may not be used for other purposes, such as a TV room for your kids. If you do have a dedicated space, though, you can typically deduct insurance, repairs, real estate tax and utilities. If your home office space is 300 square feet and your entire home is 3,000 square feet, for example, the percentage of the deduction you can take is 10 percent.

You may want to take advantage of the IRS’ new simplified method for home office deductions. This method usually results in fewer errors, thus reducing the chance of an audit.

4. Deductions that seem unlikely for your income level. Too many deductions with too little income is a red flag to the IRS. In fact, in 2014, the percentage rate of audits for those who reported no adjusted gross income was a whopping 5.26 percent compared to the 0.85 percent average, according to an IRS report. Why were there so many audits? When the IRS sees this, they wonder if you have inflated your deductions so that you have no taxable income. You shouldn’t take any deductions that you can’t back up with a receipt. Many agents use receipt capturing phone apps like QuickBooks Self-Employed.

On the same point, don’t inflate your charitable deductions. As with anything your buy for your business, keep records of all receipts for charitable contributions. The IRS has limits on how much you can deduct based on your adjusted gross income, so ensure your reported donations don’t go over the allowable limit.

5. Sloppy mileage reporting. You can deduct actual car expenses or mileage to the extent you use the car for business. Most agents take advantage of the IRS standard mileage rate, a fixed rate that takes into account variable costs of operating a vehicle such as insurance, repairs and depreciation, instead of tracking and deducting actual costs. Beginning Jan. 1, 2015, the standard mileage rates are 57.5 cents per mile for business miles driven, up from 56 cents in 2014. So what triggers an audit in this case? Not tracking your mileage or grossly over-representing it as it relates to your adjusted income. Say you earned $15,000 last year and reported driving 15,000 miles, but this year you earn $10,000 and report driving 40,000 miles. The IRS might flag the deduction. Even if you haven’t been tracking mileage, it’s never too late to start. Consider using an IRS-compliant phone app, such as the mileage tracking feature in QuickBooks Self-Employed.

6. Earning a lot of money. The odds of being audited are low, to be sure. But as your income rises so does your chance of an audit. In 2014, if your income tops $200,000, your chance of being audited doubles from 0.85 percent to 1.75 percent, according to the IRS report. As you earn more income, it’s even more critical for you to keep meticulous records. You may want to hire a tax accountant or use small business software to keep records and claim the allowable deductions. You also may want to talk with a real estate attorney about turning your sole proprietorship into an LLC for tax and liability