Author Archives: c29455507

Are Rental Property Investments Worthwhile?

Are Losses Your End Game?

There are all types of seminars, self-help programs to eliminate your tax liability, but the real question is are you going to be tax compliant?  This all depends upon various factors you need to consider because you know the IRS isn’t going to make it easy for people to not pay their taxes.  However, like everything, there are loopholes to see what the possibilities and if your round block fits in the round hole and not into the square hole.

  • Are you an active participant in which you make decisions regarding who rents from you, figuring out rental terms, determining what does and doesn’t get any repairs? Being on the sideline and expecting that mailbox check doesn’t make you active.
  • What are the comparable rents in the area or are you just assuming you can set any amount?
  • Do you have a stress test that shows the total cost of any renovations, the mortgage payment, insurance and property taxes, HOA dues, and other expenses showing what your monthly outlay of cash is and can you afford those payments when you don’t have any tenants renting?
  • What’s your back-up plan if some type of natural disaster happens and your tenant needs to move out if it becomes uninhabitable – are you covered in the agreement?
  • When you have a property on the market and believe that you’d rather show a loss than a profit at the end of the year because you think it’s a tax perk, what happens when you need to show positive financials for a refinance?
  • When are you projecting to make a profit and are you willing to keep it in an emergency reserves fund for those months you don’t have a tenant?
  • What’s your process to find a qualified tenant and keep them happy or your process to quickly remove a bad tenant?
  • How far are you located between you and your property – out-of-town purchases are the most difficult to deal with because you’re often relying on locals to make sure that your investment is protected.

Not everything is a good fit for what you’re trying to achieve, and there are situations that you’re able to help offset your tax liability at the end of the year.  However, it’s not the wild wild west days where you can get money any time you want it, nor is it easy to hold onto what you have.

Again, “I want to pay my fair share of taxes” and unfortunately there’s no real truth in determining what is considered a person’s fair share.  However just like a marriage, it’s very easy to get into and very difficult to get out of.  Whether you’re looking at real estate flipping or becoming a landlord, you’re not going to be able to get out of what you can and cannot do quite so easily and you have to be prepared to deal with the long haul.

Dwayne J. Briscoe

Are Rental Property Investments Worthwhile?

Where’s the Profit

Numerous first-time rental property investors often make some bad management decisions, because nothing replaces experience in what you’re trying to accomplish venturing into a new field that you don’t have the ability to make informed choices.  One of the worst challenges is though that people have the misleading idea that as soon as they rent a property, they own it just all comes out automatically and there’s no work to it.  Well here’s some challenges that a lot of people fail to comprehend:

  • When you replace everything, is it necessary or can you do with what is within the standards of the community?
  • What are the comparable rents in the area or are you just assuming you can set any amount?
  • What is your budget for the total cost of any renovations, the mortgage payment which also includes insurance and property taxes, and can you handle those payments when you don’t have any tenants renting?
  • What’s your back-up plan if some type of natural disaster happens and your tenant needs to move out if it becomes uninhabitable?
  • Did you calculate your HOA fees into the cost of what your basic expenses are?
  • When you have a property on the market and believe that you’d rather show a loss than a profit at the end of the year because you think it’s a tax perk, what happens when you need to show positive financials for a refinance?
  • When are you projecting to make a profit and are you willing to keep it in an emergency reserves fund for those months you don’t have a tenant?
  • What’s your process to find a qualified tenant and keep them happy or your process to quickly remove a bad tenant?

It’s unbelievably easy to spend money but an unbelievably hard time to make it work for you, and a lot of business failures end up being caused by money mismanagement.  Everything needs to be thought through, the possible contingencies considered, and determine what’s going to be your best options in moving forward.  The key word is “budget” and actually maintaining one throughout the course of a business.

Dwayne J. Briscoe

Are Rental Property Investments Worthwhile? Tax Deductions

There’s no such thing easy “mailbox money” because there’s always some type of risk and work involved to achieve it, despite what a lot of real estate gurus will tout on their infomercials.  Rental property investments are no different, because like life, it’s all about the risk in what measures you’re looking to take to not only protect yourself but also your financial future.

In this article, we’re going to look at some of the basic tax deductions when there’s a single-family rental property involved.

  • Loan interest, especially in the beginning, significantly lowers your profit.
  • Depreciation, like any other fixed asset, is a deduction many people fail to capture on their tax return because if it’s done legitimately, it’s a great tax benefit.
  • Your repairs to the property are deductible, unlike your personal homestead.
  • The Tax Cuts and Jobs Act has allowed some landlords to pass up to 20% of their rental profit.
  • Landlords are not obligated for self-employment tax, which can save 15.3% off the rental profit.
  • Legitimate travel back and forth between your tax base and the rental property in question, whether it’s a percentage of your vehicle costs or the standard mileage deduction, is important to track properly.
  • Insurance for your property not only ensures its security but also a valuable write-off.
  • Legal and professional services related to the business dealings of the property.
  • Property taxes are fully deductible unlike the $10,000 cap for personal homestead properties.
  • Advertisement for renters.
  • If you have a dedicated credit card that you use solely for the property, then any interest payments are also eligible for a tax deduction.
  • HOA fees and other related expenses such as utilities the landlord pays for regarding the use of the property are eligible.

There are many more options that are available to explore and there’s never a one-size-fits-all plan for people, because it always depends upon the situation, what type of risks and financial investment a person can make, as well as how much work they’re willing to put into the property.  Nothing is ever or everyone would be doing it, so before you jump on the easy train, it’s best to explore all options before you end up losing more than what you can afford.

Dwayne J. Briscoe

The $10,000 Amazon Deal (Or No Deal)

Amazon recently expanded their appeal to employees regarding their Delivery Partner Service Program because they’re trying to stay ahead of the curve in delivering your packages from 2 days down to 1, refusing to give into competitors’ ability to compete for your desire to get that package even sooner than the normal wait time.  What does that entail for its employees?  Each Amazon employee who chooses to pursue this avenue of independence will receive $10,000 to start their business, as well as 3 months gross salary to help get them off the ground without sacrificing a lapse in funds but with everything there’s strings, including needing an estimated $30,000 of their own money to get started.

Quite an ambitious undertaking for the wealthiest company in the world setting aside an estimated $800 million, especially since they were automating their warehouse even further to help offset potential reorganization and unemployment on the company’s end.  And imagine how this would play out with other major businesses who could offer the same type of incentive, but is the grass always greener on the other side?

Like many other employees dreaming about becoming their own boss, expecting the money to be rolling in without having to pursue other options because it’s an 24/7 automatic customer, there are certain things that people fail to realize in becoming their own boss.

Being a business owner, ask yourself the following since I need to explain that to many newcomers to the business world:

  1. When I can’t get out of bed because of illness, do I have any sick or vacation days?
  2. When I’m waiting on a check from my customer(s) to appear, who can I rely on?
  3. Who’s paying for mine as well as my family’s health, vision, and dental insurance?
  4. What happens if I just want to quit – am I knowledgeable enough to close my business and start working full-time again for someone else?
  5. Am I prepared to deal with the accounting of my income and expenses to file my tax return and pay those taxes?
  6. What’s it going to cost to get around when it comes to my gas, vehicle insurance, liability insurance, parking tickets, vehicle repairs?
  7. Can I afford to take a day off?
  8. If I hire some help, can I count on them 24/7 and are they independent like me or need to be considered an employee?
  9. Who will you have to complain to about your boss when you’re the boss?
  10. Can you take the chance and learn to adapt with making up your own rules to not only survive but thrive?

It’s not all doom and gloom when their employees start their business, and there will obviously be numerous success stories that will come out of this opportunity for many of Amazon’s employees.  However, these are the questions that every person needs to seriously ask before starting their business and if they have the hutzpah to get it started.

Also, word to the wise, just the self-employment tax on the $10,000 start-up cost is $1,250.00 if they stay as a sole proprietor, and if they received an additional $10,000 in gross wages, bump that estimated amount up to $2,500.00.  Now they get credit for half of that on their tax return, but that’s before they even make one dollar in their new business.

Dwayne J. Briscoe

Lust for a Balance in Business Success

It’s amazing that business owners and employees feel that they can’t stop working so much because they are afraid of not succeeding, providing for their family, worrying about every little problem, but forgot how to enjoy what they’re doing. Many people have come through this to where they give up their entire life to figure out how this balance is supposed to happen, and I’ve often joked about starting a support group for the spouses who are left at home taking care of home life because they were the ones managing the family.

There are 3 key questions that I ask new clients when I do an initial consultation to figure out how the entire business picture looks, what they’re trying to accomplish, and where their potential pitfalls are that we need to work towards correcting.

1.     What is your Plan B?

So many business owners, whether they make $50 thousand a year or $15 million a year, they have no plan as to what’s supposed to happen if they become incapacitated or even pass away.

a. How is the family moving forward with a business they know nothing about?

b. What happens to the customers and vendors that need service and payment?

c. Does anyone know what’s going on regarding the finances, tax returns, etc.?

2.     What do you, as the client, want?

It’s amazing that people assume all I do is enter numbers into a tax software and pull out the information needed to file a tax return, but if I don’t know what the goal is from those reports then what’s the plan to help move forward?

a. Are you looking to sell the business or pass it on to someone in the next 5 years?

b. How much do you want to grow the business which may mean hiring employees, being more social media savvy for selling who you are, and who’s coming in behind you to be a cheerleader?

c. Are you working to spend more time with your family and enjoy the life we’re given since we have only one shot at it?

3.     What’s your biggest challenge?

It’s always “getting more customers” as the answer but there’s often no plan as to how to handle that.

a. Is there a budget on your marketing that you’re following and making sure it’s making good business decisions?

b. Are your current customers happy with what you provide and are you getting the feedback you need to deliver properly?

c. Do you ask your customers for referrals?

No, it’s not something that has changed over hundreds of years as to what makes business’ successful, but the question is what makes a difference in your own life as to what you want to accomplish. We’re given one chance at life, and a friend from decades ago showed me a wooden sign they had made for their office, which was “this is no dress rehearsal.”

Dwayne J. Briscoe

Envious of Those Taxpayers Paying Pennies on the Dollar?

Not everything is what it seems, and there’s a lot of options out there that are available but not always possible because there are rules for each scenario.  Here are five such avenues.

Tax Debt Under $50,000.00

For unpaid balances of less than $50,000 which include interest and penalties, there’s a streamlined installment agreement option which will allow you to pay off the balance over a period of 72 months.  Although interest on the balance of your debt will accumulate until the debt has been completed.

Offer In Compromise

This option has greater challenges in that it looks at: your ability to pay, income, expenses, and asset equity.  Offer In Compromise Booklet reviews the various areas of what is involved with the program, and the OIC Prequalifier is an interactive online tool which can determine your eligibility provided by the IRS.

Currently Not Collectible Status

There are situations for which you cannot pay back the IRS for various reasons because you can’t pay your taxes and have reasonable expenses, thus the IRS Taxpayers Advocate Office has a Currently-Not-Collectible page for you to look at what’s possible to consider if you’re facing a mountain of debt and don’t have the capabilities of moving forward until your tax situation has been resolved.

Innocent Spouse Tax Relief

In the situation to where a spouse or former spouse failed to properly report items or omitted on your tax return, a person does have the option of doing this request for relief to avoid to where the spouse in question is the one responsible for the tax, interest and penalties.  The IRS has a very specific set of rules and it focuses on how much knowledge of the situation the spouse applying for the Innocent-Spouse-Relief option.

Expiration of the Statute of Limitations

Everything has an expiration date, and the IRS is no different when it comes to collecting back taxes from taxpayers, which is generally 10 years.  However, this is more challenging when you understand that there’s no deadline if the IRS determines that the taxpayer has filed a false tax return willingly, failing to file tax return(s), as well as working to avoid in paying taxes.  Not the most ideal option to pursue, however it is an avenue that some people do choose.

Again, not every option is right for every person when they’re in trouble with the IRS, but there are options out there to help taxpayers who get into some trouble and need a helping hand.

Dwayne J. Briscoe

Pigs Get Fed, Hogs Get Slaughtered

Gluttony is not applicable when you look at the rules set-up when it comes to the IRS, and currently there are 74,608 pages in the U.S. Tax Code, so some may say that the tax code covers greed well enough.  However, there are many areas that cover a lot of overlap, likely some misguided or antiquated rules that are still part of this Code that a lot of people still try to utilize to argue as to what’s deductible and what’s not.

Bad Debt

  • When you look at taking a bad debt deduction on your tax return
  • Where are the documents proving that you tried to collect it such as invoices, collection call documentation notations
  • Did you use the right form to report it on the tax return

Hobby versus Business

  • Do you have a business plan in place
  • What documentation do you have to prove it was an actual business you set-up for the purpose of making a profit
  • What have you done to show you tried to make a profit based upon your expertise and of those around you

Real Estate Professional

  • What is considered passive activity loss versus being considered a professional
  • How good is your mileage documentation in an audit
  • Do you try to write off all of your losses but in all actuality truly being a passive investor

Free Money Always Comes With a Catch

  • Are you aware of the difference between a legal settlement and a tax-free judgment
  • When are gifts actually considered taxable
  • If you’re doing work on the side, you’re paid in cash, are you sure you are not going to be turned in later so that business can take the expense

Failure to Make a Profit Ever

  • There is an estimated amount of 82% of small businesses that fail, with poor cash flow management being the #1 reason, but how long do you shovel the money pit
  • If you’ve had losses for 3 out of 5 years, did you know the IRS can potentially classify your business as a hobby and therefore negate the losses on your filed returns
  • If you try to use the Cohan Rule to where you may have lost or misplaced some of your receipts, having nothing won’t likely work as a defense

Yes, 74,608 pages to the tax code, and people who believe that they won’t get caught because they have paperwork on their side.  However just because something is listed there doesn’t mean that it can’t be applied to benefit you as a taxpayer unless you have a good enough argument.

Dwayne J. Briscoe

Wrath Can Be Detrimental to Any Businesses Involving the IRS recently reported IRS Reports Ten-Fold Increase in Tax Whistleblower Awards: $312 Million in the 2018 Fiscal Year, which amounted to over $1.441 billion in taxes, penalties and interest that were recovered.  It’s interesting that Dean Zerbe mentioned “For all the talk that fills Washington about making sure people pay their fair share…” all goes back to a previous post I wrote, in which many tax payers have made this their mantra and although it’s an open-ended statement because it’s unclear as to what that amount actually is.

Now this doesn’t mean that everyone is going to rush out and become a whistleblower to the IRS because there’s a significant amount of denials when the information is submitted because there’s a rigorous process someone needs to go through in order to get to the point of being rewarded for their collection efforts.  As well there’s many issues of retaliation that have occurred on behalf of the company target that are sprouting up burgeoning law practices to fight for the protection of the whistleblowers and it’s working in their favor.  This is why we have the False Claims Act which is geared towards entities that defraud the federal government, the Dodd-Frank Act which focuses on protecting consumers against abuses related to credit cards, mortgages, or other financial products.

The Whistleblowers Act of 2017 was designed specifically for tax dodgers and included in the Tax Protection Act of 2016.  From this, it’s helped propel the increase in awards and tax collections because it’s ultimately how the IRS collects its paycheck for the government to help support the services that everyone who lives in America sometimes takes for granted, and it’s vital that we remind ourselves of why we need to pay taxes.

The Census Bureau’s Annual Survey of Entrepreneurs have estimated that in 2016, businesses with less than 0-19 employees accounted for 89% which is a significant amount, allowing a much bigger target for challenging IRS audits and general tax reporting.  Although there’s no statistical data on how many businesses are behind in filing their tax returns, there’s no time limit on collecting these taxes for having not filed your returns.

What does that mean for you and how does this all tie together?  There’s the opportunity of being charged with a crime, either from tax evasion or failing to file tax returns.  There’s also the challenge of fighting what may be misunderstood deductions or receiving advice from well-meaning friends or family to something you read on the internet that wasn’t from the IRS web site as legitimate.  People bet the odds that they won’t be caught, and a lot of people likely will never be challenged.  I met someone some years ago who hadn’t filed in 22 years, lived receiving only 1099s and W2s during this time, and their excuse was that the IRS had taken monies owed to them from a bank account without their knowledge.  Since then they never had a bank account again because it was their distrust on why they chose to live in their current state.

They consulted me after they started receiving notices from the IRS, and I explained to them the safest option was physically meeting with a representative to determine what the best course of action after due diligence preparation as to why they failed to file after so many years.  I explained to them the amounts would be significant, penalties and interest would be significant, and an Offer in Compromise could potentially become a resolution to the problem.

What happened to them?  They chose to ignore it and we parted ways.  Ben Franklin said “…in this world nothing can be said to be certain, except death and taxes” back in 1789.  After 230 years, it’s not going to be changing any time soon.

Dwayne J. Briscoe

The Greed of Gordon Gekko

Many people remember when Wall Street came out in 1987, and it was something that was new, exciting, and brash that so many entrepreneurs wanted to emulate because they thought that was the end all, be all, of what you needed to be in order to succeed.  No someone doesn’t need to show millions of dollars of wealth to be considered greedy and constantly seeing how much they can squeeze out of a person(s) or a competitor.  People with a little bit of power feel that they do whatever they can to hold onto that, without thinking about the consequences.

Jacksonville University published an outstanding piece based upon the infamous line “the point is, ladies and gentlemen, that greed, for a lack of a better word, is good.”  They focused on six key points which when you read them out loud, makes a lot of sense, regardless if you’re just now starting a business or you’ve been in business for over 10 years.

  1. Money replaces values and ethics
  2. Failure to mentor and teach
  3. Too many clients, not enough capacity
  4. Loss of focus on employee morale
  5. Poor personnel choices
  6. When income means more than improvement

People are sometimes afraid to admit it, and I personally have needed to remind myself why I started my business in the first place, which was helping business owners succeed from the financial standpoint.  Over the years there are some key points that I’ve learned from who I see succeed, and it’s not a matter of how much cash in the bank they have but their quality of life.

  1. Customers and employees look forward to coming into your business
  2. There’s a balance of family life for everyone involved in the business, not just the owner
  3. You can honestly say you’re making a difference with what you offer your customers
  4. The business’ books can be legitimately defended – lying on the tax return has its own set of detrimental consequences
  5. You are happy with what you’re doing, because if you aren’t, then everyone around you feels it
  6. You constantly work on change and don’t believe that it’s your way or the highway

It’s always a challenge to determine what’s best because not everything can be black and white or even gray at times, and it’s a situation that you don’t expect if you to put your information out there for the world to see in today’s social media climate.  It’s not always necessary to show or post about everything going on in your life, and there’s a consequence of that as well.

Privacy is no longer there, as the IRS Seeking Social Media Mining Initiative is real and it’s not going anywhere but in everyone’s business.  Most everyone loves posting all their information both professionally and personally, and it’s nothing new that hasn’t happened before.

Dwayne J. Briscoe

Medical Expenses and the Sloth Experience

The definition of sloth is primarily laziness and today we’re always looking for a quick that’s going to make us healthier, happier, without having the time to do it.  It’s not surprising that so many people are willing to cut corners then by counting everything as a medical expense on their tax return which leaves many holes as to what is legitimate versus a personal expense that you can’t legitimately count as a tax deduction.

Deductible Items

  • Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction; or for participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal that require a prescription
  • Payments for false teeth, reading or prescription eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, and for a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities
  • Wigs prescribed by a psychiatrist to deal with anxiety about hair loss
  • A special bed or mattress to help your back or sleeping disorder prescribed by a doctor.
  • Remedial reading help for a dyslexic child
  • In-vitro fertilization treatments for someone who is infertile
  • The difference between the cost of a gluten-free diet and your old diet if it costs more and is prescribed by a doctor

Non-Deductible Items

  • General toning and fitness workouts
  • General nutritional and diet supplements
  • Diet food and beverages
  • Running shoes, yoga mats, weights and Fitbit
  • Cost of entry to charity races

As you can see there’s some obvious choices that make sense because they’re primarily affected by the prescription from a licensed health care practitioner, however you still should realize that there are certain items that you can’t defend as legitimate and just realize it’s a choice to spend your monies on.

Dwayne J. Briscoe