Real Estate Professionals Pay Less Taxes in 2019
The Tax Cuts and Jobs Act has made sweeping changes across all industries and sectors; it was not designed to simply provide relief for individual taxpayers. Those who are in real estate will be delighted to learn they will pay less taxes because of the Act. Since this is a new law, it is critical that entrepreneurs and business owners understand its implications to discover how it will impact your tax liability – and find ways to reduce it. It’s safe to say the IRS won’t send you a check with a hefty refund because you failed to utilize all the legitimate deductions.
Consider the professional who established a pass-through entity, of either an LLC or S Corp. Thanks to the passage of the Act, a substantial change has been made in calculating the amount of tax you will owe. Now, agents may deduct up to 20 percent of qualified business income.
Save money; create a professional association One legitimate way to chisel down the amount of tax liability is one that may not be familiar to most. Typically, any funds in a real estate transaction must be paid to the agent, if he or she has a DBPR license in Florida. However, if the agent establishes a Professional Association (often known as a PA), the individual may receive the 20 percent pass-through income deduction on the profit on their income. That’s right: 20 percent! For example, if John Doe is classified as a professional association, it would be set up as: John Doe, P.A. A simple step like this is sure to lower your tax liability.
Many real estate agents may not know what items they can depreciate. Consequently, they end up paying entirely too much in taxes. For example, many are not taking advantage of a home office deduction. For those who fall in this category, you may depreciate a portion of your home.
Also, you may be able to depreciate your vehicle. Let’s consider that you purchased a $20,000 automobile and you use it 75 percent of the time for business. Calculating your mileage is the best way to determine the percentage. Now multiply $20,000 X 75 to arrive at $15,000. This amount is called your depreciable cost basis. You are allowed to depreciate $15,000 – but over time. Many real estate agents overlook thousands of dollars in legitimate annual depreciation costs because they are not aware of them, or they fail to keep proper documentation.
Why it is important to engage a tax expert?
Real estate agents know their business, inside and out. Similarly, tax professionals know their business. TaxLeaf, that has been operating in Florida for more than four decades, is one such firm. Interpreting this new legislation is best left to the experts. For example, the team at TaxLeaf would not be someone you would enlist to sell real estate on your behalf. In their 42 years, they have helped business owners navigate tax rules and regulations. Oftentimes, proprietors don’t want to admit they can’t handle their own taxes. This year, TaxLeaf anticipates more business than usual; they expect many real estate agents will try to demystify the
new tax reform law on their own. No doubt, agents will get caught up in a maze of codes. They may not understand Section 179 expensing, carried interest, and qualifying assets and a host of other tax terminology. TaxLeaf can explain those words and terms – that may seem like Greek to the average person – in simple, easy-to-understand language. Speaking of language, their team is multi-lingual; they speak English, Spanish, Portuguese and Russian.
Make things simple with accurate recordkeeping
Remember those New Year’s resolutions? People have good intentions but still put off tax preparation until the last few days before the deadline. Then it’s a fire drill; they frantically struggle to locate all those documents to demonstrate to the IRS what their income and expenses were for the year.
TaxLeaf has been helping business owners and individuals with much more than tax return preparation. Their diverse professionals provide business owners with professional, accurate bookkeeping and payroll services. You’ll get access to LeafCloud – a cool App that gives you online access to your most important tax documents and filings. No matter the language or the culture, TaxLeaf is ready to assist. Stop by at your convenience for a free, no obligation consultation.
Ready or not, tax season is here. Do yourself a favor; let us help you get organized and compliant.