Saturday, November 25, 2017

Master Index of Posts



I've compiled a Master List of my posts for easy reference. Not every post is included, and I have changed the order to put the most important or timely ones on top, and to group some based on categories (Military, Obamacare, Tax Software). I will try to keep this updated and just below the latest post. Please let me know in the comments if I screw up a link :) Some of the posts are OLD so be careful assuming the information is current.

If you have a Kindle, you can get a copy of my entertaining and useful book, The Short, Cheap Tax Book for Everyone for only 99 cents!

If you like the blog, buy my other books: Kirk Taylor, EA Author Page

Important or Time Sensitive Posts

"Office" Hours for Questions
Will Your Refund be Delayed (2016 Tax Year)
Tax Identity Theft State Efforts and Delays (2016 Tax Year)
The Dreaded CP2000 Letter from the IRS
Need a Copy of Your Tax Return? Get a Transcript Online! NOT! Updated advice...
The IRS did NOT Call You!
I Got an E-mail from the IRS!
I Want to Lower my Taxes!
Last Chance for 2013 Refunds
10 Simple Pieces of Tax Advice
10 Things Everybody Should Do
Check Your Withholding

Military

Military Spouses Residency Relief Act Details and Matrix
Retiring from the Military? Tax Warnings!
Reenlistment Bonus, Social Security, Compensation Repayment and Taxes
2017 Military State Tax Guide
2016 Military State Tax Guide
2016 Boomer Deduction Worksheet
2015 Military State Tax Guide
2015 Boomer Deduction Worksheet
2014 Boomer Deduction Instructions for TurboTax Online
2014 Boomer Deduction Instructions for H&R Block at Home (store bought or downloaded)
2014 Boomer Deduction Instructions for TaxSlayer
2014 Boomer Deduction Instructions for TurboTax (Store bought or downloaded)
Boomer Deduction - History and References
More Boomer Deduction Information
Minnesota Combat Zone Credit
SC Military Retirement Change (2016)

Tax Software

TurboTax Admits That Easy Is Better Than Accurate
Tax Preparation Software Sucks - An Open Letter to H&R Block

Business Guides

Sole Proprietorships are Bad
Avon, Pampered Chef, Party Lites, Amway, etc. MLM Tax Guide
UBER Driver Tax Guide
Tax Guide for Contractors - or - 1099MISC WTF?
Real Estate Agent Tax Guide

General Posts

Getting Married? One Piece of Important Tax Advice.
The Dreaded CP2000 Letter from the IRS
Investing and Taxes - A Primer
How Much does it Cost to File Taxes?
Reenlistment Bonus, Social Security, Compensation Repayment and Taxes
Open a Roth IRA Today! And Not For the Reason You Think
Foreign Earned Income Exclusion Warnings - Update
Charity Made Simple
How Fast Can I Get my Refund?
Make Estimated Tax Payments the Easy Way
Depreciation Recapture - an inaccurate description
Don't Touch that 401K or IRA!!
What do you do with that Big Tax Refund?
It's Okay to Get a Big Refund - Really...
Common Tax Return Errors - Updated
Common Tax Return Errors
I Have a Blog and I Want to Bitch!
Mortgage Tax Credit Information
Lesson from the Government Shutdown - Emergency Fund
Don't Pay Capital Gains Taxes if You Don't Have To!
I got a 1099C - Now What?
Cancelled Debt and Insolvency
The IRS, email and privacy...
IRS Checking Facebook?
>$250 Donation Acknowledgement
Drop Box Donations - US Marines
Tax Scams
Rental Property Guide for Homeowners
Taxes and Divorce
Random Thought about Books
Taking Care of the Client
Warning - Tax Resolution Scams
Foreign Earned Income Exclusion - WARNINGS!
IRS.GOV Website Update

Affordable Care Act (Obamacare) Posts

Obamacare in SC - Something's Fishy
The Affordable Care Act (Obamacare) and People with Health Insurance
Affordable Care Act (Obamacare) for the 2014 Tax Filing Season
Obamacare, Affordable Care Act and Married Filing Separately - Warning
Affordable Care Act, Obamacare update and advice
Healthcare Law, Obamacare, Affordable Care Act Info
Weird Obamacare Strategies and Incentives - 1
Weird Obamacare Incentives and Strategies - 2
Weird Obamacare Incentives and Strategies - 3
Weird Obamacare Incentives and Strategies - 4
Weird Obamacare Strategies and Incentives - 5
Weird Obamacare Strategies and Incentives - 6

"Office" Hours

I've decided to set up a little time outside of tax season specifically for handling emails and phone calls (I answer emails anytime, but I hope office hours will get me back on track with the ones I procrastinate on).  I will publish them here and am perfectly willing to give you a call to answer questions from anyone and everyone - client or not.

I love answering questions - it keeps me smart.

Big caveat - if you aren't a client, the answers are free, and you get what you pay for.  I make no guarantees, and answering your question in no way establishes a preparer client relationship as defined by any IRS regulations.  It's just a tax guy answering questions for a friend.
Also, I don't work for my employer off-season, so everything I'm doing at this time is outside of our normal in-office relationship.  Again, friend to friend.  I will be back in the same office every year unless something goes to hell in a bucket so you'll see me there as usual.

So if you want to ask a question, feel free to email me at taxadvisor@email.com
I prefer to handle it all via email, but if you think a conversation is in order, go ahead and ask me to call you within one of the office hour windows.
I will do this for as long as the volume of questions allows.
I will update the dates as I set time aside.

28 November 10 am to Noon
Vacationing until December 13th

And buy my books:

Kirk's Amazon Author Page

2017 State Tax Guide for Military

State Guidelines for Military (2017 values)

The latest edition of my book: Everyday Taxes 2016 contains dozens of life events like getting married, moving and having children.  In each chapter I have included specific information for military members.  Please check it out: Everyday Taxes 2016 (it's also inexpensive).  Even cheaper is my entertaining and informative book: The Short, Cheap Tax Book for Everyone.  Only 99 cents on Kindle!

The information here is subject to change as states update their information.  I will update at least weekly until mid January, so please check back just before you file.  The primary purpose of this is discussing the taxation of active duty pay, but I have mentioned retired pay for some states when I found the answer easily, but just because I don't mention pensions doesn't really tell you anything.

States with changes for 2017: NJ, WV

Military Spouses Residency Relief Act (MSRRA)
Most states have begun to treat this in a similar manner to each other. In general, the spouse of a service member has two choices for state of residency: the state they are stationed in, or the military member's state of residency. In order to claim the military members state, they must have established a domicile in that state at some time before moving to the current state. For those qualified to make the election to claim the military members state, it is important to weigh the benefits properly, for example, a spouse who works in SC married to a military resident of MI might assume that since MI does not tax the military member that they should choose this state. This would be wrong because MI will tax the non-military income of the spouse. SC is far more generous to the spouse of a service member stationed in SC. Expert assistance may be required making this determination. It can also be difficult to get the current state to stop withholding from the spouses wages. Each state Dept of Revenue has different procedures for handling this.

An added twist to this is that some states, like Maine, New Jersey and New York, have a way for residents not living in the state to claim non-residency for tax purposes.  Our best minds conclude that this would allow a military spouse claiming one of these states as their state of residency could claim non-resident status and not have to pay taxes to the state.  This has not been fought or litigated to my knowledge, so it would be wise to be aware that some states might fight it.  My advice is always to go the aggressive route, but see what the difference is going the other way, and be prepared if the state fights this later.  I personally set aside the excess refund for three years, and then spend it :)

Residency
A military member normally retains residency in the state they resided in when they joined the military unless action is taken to change this. The W-2 can generally be relied upon as to the state of residence of the military member. The states in which a service member are stationed will not tax the members military income unless they are residents. They will tax any income earned from other employment or business activities conducted in the state by the member and their spouses (subject to the MSRRA discussed above.) The discussions below talk about the taxation of military income for residents of the respective state.

Filing Requirements:
Not having to file discussed below assumes there is no withholding from the given state. A member may file even if not required and should do so if they have withholding from the given state so they can get the money back. If a member would not be required to file except for the existence of withholding, they should adjust their state withholding through MyPay so no taxes are withheld from that state. They may also consider stopping withholding even if they are required to file, for states that do not tax their income (MI for example.) Many people do not file required tax returns when there is no refund or balance due. This could result in a letter from the state requesting a return but rarely any penalties – but there can be!

Death Benefits:
Many states exclude death benefits and military pay for service members killed in a combat zone or while on active duty. The specifics are not discussed here. Survivors of service members killed on active duty can obtain assistance for this from CACO personnel.

States with Blue names either require a tax return or other document to be filed by military residents, or a tax return should be prepared to determine if any refundable benefits are available from that state. 

Alabama:
Alabama treats military residents the same as all other residents.  Alabama does not tax military retirement.

Alaska:
Alaska does not have an income tax. Alaska Permanent Funds Dividends are taxable on the Federal Return.

Arizona:
Arizona does not tax active duty military pay, and does not require filing if the only AZ source income is active duty pay.

Arkansas:
Beginning in 2014, Arkansas no longer taxes active duty military pay.  A tax return is still required.

California:
California does not tax military pay of CA residents stationed outside of the state of CA. They do tax military income of their residents when stationed in CA. They also treat military spouses generously, similar to SC. Form 540NR is used to account for this. You write “MPA” to the left of column A for non-resident military income and enter the military income in column B but exclude it from column E.

Colorado:
Beginning in 2016, CO will not tax active military income of military members with a home of record of Colorado.  If the only income is military income, a tax return is not required.  There's a weird provision that makes this applicable only to members whose home of record was Colorado when they joined, not people who changed to Colorado after they joined.  I'm not sure how this will be applied in real life.  Prior to 2016, Colorado taxed military residents the same as other residents unless the member was stationed outside the US for >305 days in the year.

Connecticut:
Connecticut allows resident military personnel stationed outside of CT to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in CT for the entire year (a parents house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of CT for the entire year. 3) Spend no more than 30 days in CT for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other CT source income.
Starting in 2015, military pensions are not taxed by CT.

Delaware:
DE taxes military residents the same as all other residents.

Washington DC:
DC taxes resident military personnel the same as all other residents.

Florida:
Florida does not have an income tax.

Georgia:
GA taxes military residents the same as all other residents however Reserves or National Guard called to active duty for more than 90 days may be able to take a credit against their individual income tax based on their income from the National Guard or Reserves.

Hawaii:
Hawaii taxes military residents the same as all other residents except that they do not tax the first $6076 of reserve pay or HI national guard pay.

Idaho:
ID residents stationed in ID pay taxes on all military income; however, if the member was on active duty >120 days and stationed outside of Idaho they can exclude any military income earned while stationed outside of ID. If they are stationed outside of Idaho the entire year they do not need to file an ID tax return, however Idaho has a Grocery Credit that a military member is eligible for that is refundable so it is possible to get a refund from Idaho even though their was no tax withheld.  This makes Idaho one of the States that a military member should file even when not required to. 

Illinois:
IL does not tax military pay; however, the member must file a tax return if they file a Federal return. Military members with children who get Federal Earned Income Credit may get up to 10% of the Federal amount even if they have no taxes due to IL.

Indiana:
Indiana taxes military income but allows a deduction of the first $5000 of military income for the taxpayer and/or the spouse ($10000 for military couple.) If a military member changes state of residency to another state they must submit the DD Form 2058 with the tax return for the year they changed state of residency.  If you were active military and you and your spouse did not live in Indiana the entire year you do not owe county tax.  Use "00" as your county.  If your spouse remained in Indiana you BOTH owe county tax to the county he/she lives in.  Don't try to take the real estate tax deduction on property that's not in Indiana.

Iowa:
IA does not tax military income and military income is not used in determining filing requirements (if the only significant sources of income are military income, a tax return is not required.) Starting in 2014, Iowa no longer taxes military retirement.

Kansas:
Kansas taxes military income but allows a deduction for recruitment, sign-up and retention bonuses paid that are included in Federal taxable income (if the bonus was tax free to federal do not deduct it from KS. Kansas starts with Federal AGI so it is already excluded.)  The subtraction is made on Adjustments line A21.

Kentucky:
KY does not tax military income and does not require a tax return if the only KY source income is military pay.

Louisiana:
Louisiana requires a tax return from military personnel the same as any other resident; however, LA gives an exclusion of up to $30000 of military pay if the person has been on active duty outside of Louisiana for at least 120 days during the tax year. The subtraction is taken as a Schedule E subtraction, Code 10E, by entering military pay up to $30000 on the schedule.

Maine:
Maine allows resident military personnel stationed outside of ME to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in ME for the entire year (a parents house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of ME for the entire year. 3) Spend no more than 30 days in ME for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other ME source income. Maine calls this the General Safe Harbor Rule.  Maine no longer taxes military pensions as of 2016.

Maryland:
Maryland taxes military residents just like other residents; however, they allow a subtraction for up to $15000 of military pay earned outside of the U.S. (Military Overseas Income.) The deduction phases out dollar for dollar as ALL military income goes above $15000 and there is no exclusion if the total military income exceeds $30000. The subtraction is taken on Form 502SU and the Military Overseas Income Worksheet is used to calculate the deduction.

Massachusetts:
There are no special tax benefits for military, however, the Massachusetts Dept of Veterans Affairs will give a one time payment of $500 to any resident after they served at least 6 months active duty in the military. They also have a $1000 benefit for personnel who serve in Iraq or Afghanistan.
Michigan:
Michigan requires military members to file a tax return; however, they subtract active duty pay from income (Schedule 1, Line 11). Military members with children who receive Earned Income Credit on their Federal return may collect 6% of the federal amount, even if they pay no taxes to MI. (This was 20% for 2011 and prior years.)

Minnesota:
Minnesota subtracts Active Duty Military pay from income of MN residents. If Gross Income on Federal return other than military is less than $10000, no MN return is required.
Minnesota pays $120 per month a military resident spends in a combat zone. This is paid separately from the tax return and is claimed on Minnesota form M99

Mississippi:
Mississippi taxes military residents the same as other residents except that they do not tax National Guard and Reserve pay up to $15000.

Missouri:
MO allows resident military personnel stationed outside of MO to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in MO for the entire year (a parent's house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of MO for the entire year. 3) Spend no more than 30 days in MO for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other MO source income. If your spouse works but claims MO as your state of residency through the MSRRA their income is taxable to MO and must file a tax return if they earn more than $1200. As of 2014, Missouri exempts 75% of military retirement income from tax and starting in 2016 all military retirement income will be tax exempt.  Starting in 2016, MO is allowing you to subtract your military pay, so you don't have to file as a non resident.

Montana
Montana requires military residents to file a tax return but exempts active military pay from taxation on Schedule 2, Line 8. Verification of active duty status must be attached to the return.  National Guard pay is tax exempt.

Nebraska:
Nebraska taxes military residents just like other residents.Nebraska has implemented an incredibly complicated option to exclude certain amounts of military retirement income for some years.  It's too stupid to attempt to explain, but if you are retiring or retired from the military in Nebraska you should read this immediately:
http://www.revenue.nebraska.gov/info/military_benefits.html 

Nevada:
Nevada does not have an income tax.

New Hampshire:
NH does not have an income tax but they do tax interest and dividends. Generally, these would need to exceed $2400 for an individual and $4800 for a couple.

New Jersey:
NJ allows resident military personnel stationed outside of NJ to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in NJ for the entire year (a parent's house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of NJ for the entire year. 3) Spend no more than 30 days in NJ for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other NJ source income.(NJ does not consider barracks maintaining a permanent place of abode outside NJ)
New Jersey just passed a $3,000 exemption for honorably discharged Veterans which applies to tax years 2016 and beyond.

New Mexico:
New Mexico does not tax active duty military pay however; NM residents are required to file a NM return if they were required to file a Federal return.

New York:
NY allows resident military personnel stationed outside of NY to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in NY for the entire year (a parents house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of NY for the entire year. 3) Spend no more than 30 days in NY for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other NY source income. NY specifically excludes barracks as an abode outside of NY for the purpose of this rule. Also, if a NY return is required to be filed to get back state taxes withheld and this exemption results in zero income (as it usually does) the return may have to be mailed in vice electronically filed.  NY does not tax military pensions.

North Carolina:
NC taxes military residents the same as other residents.

North Dakota:
ND taxes military residents the same as other residents, however, National Guard and reserve members called to active duty can exclude their active duty pay form ND income.

Ohio:
Ohio does not tax military pay of OH residents stationed outside of the state of OH. They do tax military income of their residents when stationed in OH. Ohio does not tax military retirement pay.

Oklahoma:
Oklahoma allows military members to exclude active duty pay. This exclusion is accomplished using Schedule 511-C. Military members are required to file an OK tax return if they were required to file a federal return.

Oregon:
Oregon allows a subtraction of all military pay earned while stationed outside of OR and up to $6000 earned while stationed in Oregon (Subtraction Code 319). OR also allows military residents to be treated as non residence if they spent less than 31 days in OR, did not have an abode in OR and had a permanent abode outside OR the entire year.

Pennsylvania:
Pennsylvania does not tax Active Duty Military Income of residents stationed outside of PA and does not require a tax return; however, they do require the service member to mail or fax a copy of their orders stationing them outside of PA and their W-2. If filing a tax return a copy of the orders must be included when mailing the return, or sent separately to the address below.
PA DEPT OF REVENUE
NO PAYMENT OR NO REFUND
2 REVENUE PLACE
HARRISBURG PA 17129-0002
May also be faxed to: (717) 772-4193
Starting in 2016, PA exempts military pay from LOCAL taxes, regardless of where you are stationed.

Rhode Island:
Rhode Island taxes military residents the same as other residents.

South Carolina:
SC taxes military residents just like regular residents except that it does not tax reservist drill pay. SC is very generous to the spouses of military (residents of another state) in that they allow you to exclude the active duty income of the non-resident military member from the calculation of what percentage of deductions to allocate to the spouse. This generally results in 100% of the deductions against only the spouses SC income. It is very difficult to get tax software to handle this correctly. Line 1 of the SCNR should have no active duty military income in the Federal column.

South Dakota:
SD does not have an income tax.

Tennessee:
TN does not have an income tax but they do tax interest and dividends. Generally, these would need to exceed $1250 for an individual and $2500 for a couple.

Texas:
Texas does not have an income tax.

Utah:
Utah taxes resident service members the same as other residents.

Vermont:
Vermont does not tax military pay of VT residents stationed outside of the state of VT. They do tax military income of their residents when stationed in VT. Military pay is subtracted on line 32. A tax return is not required if the only income is military pay while stationed outside VT. 

Virginia:
Virginia taxes military residents just like other residents except that they give a subtraction of basic military pay of up to $15000. The subtraction phases out dollar for dollar as income goes from $15000 to $30000 and is completely gone at $30000 of income. (If a military member made less than $15000, it would all be subtracted. If they made $20000, they get to subtract $10000.) The subtraction code is 38.

Washington:
Washington does not have an income tax.

West Virginia:
West Virginia taxes military residents unless they spent less than 30 days in WV. In this case they file as a non-resident. WV does not tax military income of reserves or national guard called to active duty by Executive Order of the President.  Starting in 2017, West Virginia no longer taxes Military Retirement pay.

Wisconsin:
Wisconsin taxes military residents the same as other residents except that they do not tax military pay of reserves or national guard called to active duty. Rent paid by the military member in a state other than WI is allowed to be used for the School Property Tax Credit (not military housing.) If a military member is stationed outside the United States, they may take a credit of up to $300 for pay received while stationed outside the U.S.  Wisconsin does not tax military retirement.

Wyoming:
WY does not have an income tax.

Feel free to send questions to Kirk at taxadvisor@email.com

I am available to prepare taxes via mail, e-mail, fax and online approval. No fees are charged until the return is complete and you are 100% satisfied. If the fees are too high, refund too low, or we determine that a cheaper filing method is appropriate, I will return all materials and charge no fees.

I will check any individual tax return from 2014, 2015, 2016 or 2017 for free. If I find an error, I will offer to fix it for a fee if desired

I have made every effort to ensure the above information is 100% accurate, but I am human and the various governments love to change the rules. If you think something is wrong please inform me via e-mail at taxadvisor@email.com

The Trump Tax Plan and You

Reserved for future discussion and possible spreadsheet for determining the effect of the finalized plan.

Saturday, October 7, 2017

IRS.GOV Gets a New Look

As a Tax Professional, I'm acutely aware of the myriad of ways that criminals try to steal your information.  As a person who spends their summer in a technology-free zone to allow uninterrupted tax book work, I sometimes miss some big news.

So when I typed irs.gov into my browser today to begin the long, arduous process of fact-checking and verifying data for the work I did all summer, I immediately suspected someone was trying to scam me with a fake website.  IRS.GOV looks COMPLETELY different!  It looks more streamlined, less cluttered, and at first glance, like a totally amateur attempt to fake a website.

A lot of research later (because I am SERIOUSLY paranoid) ensures me that it is genuine.

Things I like so far: Less fluff and more meat on the home page, big buttons and tabs for things you are most likely to need, and tax professional and charity stuff moved to its own area with easy to find buttons.

Things I don't like so far: The eight buttons on the home screen aren't buttons since you have to click on the words.  A bunch of other stuff that will inevitably suck but I haven't discovered yet since I rushed to make this post so you would know that the website is real and not a scam.

While your here, click on this link to get to the IRS website, click on the "Get a Transcript Online" button, and go through the steps.  This will set up an account for you that will allow you a lot of access to your tax information without having to jump through hoops later.  It's well worth your time to have this done.  Just keep the username and password handy!

Wednesday, July 19, 2017

Real Estate Agent Tax Guide

If you like the blog, buy my books: Kirk's Amazon Author Page
Makes a great purchase gift for your clients!
I've set up some office hours to answer questions.  You can arrange a call or email HERE


So you've got your real estate agents license and that first commission is finally on the way.  No way around it now, you have taxable income.  The question is, how much?  And, how do you pay as little as possible?  This post assumes that you will be paid on a 1099MISC, as a self-employed Real Estate Agent.  If you're getting a W2, some of this will be useful, but not all.  I'm also assuming that you work for a real estate company, and aren't completely independent.  Much of this advice isn't gospel, it's just what I've seen and think works best.  In some ways, it's a list of "best practices."  As always, you should use this post as a starting point, and seek professional assistance when it comes to your personal situation.  I am also going to assume you have not formed a complex business entity such as an S Corporation or Multi-Member Limited Liability Corporation.  There are benefits and disadvantages to these, but you need to talk to a professional to understand them.

I'm going to start with some basics, and then get into details.  The first big surprise you will have is that nobody's taking taxes out of your paycheck.  You have to pay it all as you go, or at the end of the year when you file your tax return.  The second thing is that there's nobody to pay for Social Security taxes except, well, you.  Most people are barely cognizant of the 7.65% that's taken right off the top of a normal paycheck for Medicare and Social Security taxes.  What even the most aware don't realize is that their employer matches this deduction!  As a 1099 recipient (self-employed is the IRS term) you have to pay both the employee and employer portion!  This means a 15.3% additional tax!  Imagine you're in the 15% tax bracket - that means you actually pay 30.3% taxes!  And this doesn't even cover state taxes!

The good news is that, unlike a W2 employee, you only pay these taxes on your 'net' income.  This means you get to take all ordinary and necessary expenses off the top before you pay a dime in taxes.  Even employees with business expenses still pay their half of Social Security and Medicare taxes before any deductions.  So what is 'ordinary and necessary'?  I like to boil it down into two categories: 1 - things you pretty much have to pay - like licensing, commissions and fees. 2 - things you pay because you expect them to increase your income or make the business run more efficiently.  If they meet either of these requirements, they're pretty much a lock as being deductible.  

Knowing the above, it's important that I give one of my biggest pieces of advice - you pretty much should NEVER do something just because you expect it to help on your taxes.  Spend money only if you have to, or because it's the best idea for your business!  This has two benefits: 1 - you don't waste money on stupid s**t.  2 - chances are the deduction is legitimate.

So now comes the part you've been waiting for: What the hell can I deduct?  Here's a nonexhaustive list, with some details, to get you started:

Marketing Expenses:  Business cards, website fees, MLS dues, lead generating expenses, posters, signs, sponsorships, commercials, advertising, pretty much anything you do to get someone to call YOU when they want to buy or sell a house.  As a non-tax aside, you need to evaluate these carefully and talk to experienced agents to find the best of these.  Your commissions are big but come infrequently.  You need to understand how much you spend for each commission so you can properly evaluate what works best.

Good, cheap marketing techniques here (this purchase would be a tax deduction : )

Guerrilla Marketing, 4th edition: Easy and Inexpensive Strategies for Making Big Profits from Your SmallBusiness

Gifts and Referral Rewards:  Gifts to clients are generally limited to $25 per person, per year.  (That’s the deductible amount, you can give more.)  Be careful of referral fees.  You should have received more training on this than me to get your license, but I will simply remind you that there are varying rules from state to state, as well as RESPA requirements that restrict what amounts, how and to whom you may pay a referral fee, so, check with your senior brokers before paying these.  If the referral fees are legal, there are ways to deduct them, but talk to your tax professional about them.

A great gift for buyers would be a copy of my tax book.  It's based on life events and has chapters like, I'm Getting Married, I'm Having a Child and, wait for it...I'm Buying a House!  Please consider buying a ton and giving them to your new homeowners - they'll thank you!
Training, Education, and Licensing:  Whatever you pay to maintain your ability to be an agent is deductible, as well as things you do to increase your skills, as well as what you are allowed to do in the field.  Classes, seminars, books, and certificates mostly all qualify.

You could deduct this book - which will also help you make more money in your business:
EntreLeadership: 20 Years of Practical Business Wisdom from the Trenches

Insurance:  I'm not talking about homeowners insurance here.  I'm talking about ‘oops I screwed up and my client is suing me insurance’; or someone who's not my client.  Sometimes this is called Errors and Omissions Insurance.  If your state or agency doesn't require it, get it anyway!  Also, if you pay a rider to your car insurance for business use, the difference between that and regular insurance is deductible.  There is also a self-employed health insurance deduction that allows you to deduct your health insurance costs if you have no other insurance source (if you can get insurance through your spouse's work this is a no-go.)

Entertainment Expenses:  Eventually you'll be with a client, or potential client, and pick up the tab for lunch, or dinner, or a stripper (don't do that - it's tacky - and questionable as a deduction).  Generally, if you expect the expense to result in a sale that makes you money, either immediately, or in the future (whether it ultimately does or not doesn't matter, as long as you expect it to) it's deductible.  I recommend writing the name of the client on the receipt, as well as a quick description - "house hunting", "referral source", "potential client" or something like that.

Travel Expenses:  These are a toughie.  People love conflating personal and business travel.  If you travel to Maine to visit family and see the lobster festival, and go to dinner with a client that is moving to your area, the trip is primarily personal.  You can deduct expenses DIRECTLY RELATED to the meeting with the client, but little else.  I recommend keeping business and personal separate.  You can visit a friend for dinner on a three day business trip, but don't do business for an hour on a three day personal trip.  Also, avoid what I call BS travel.  Flying to Vegas to assess potential real estate markets is transparent vacationing disguised as business travel, especially if you spend 23 out of every 24 hours in the casino!  Be reasonable!  Go on trips that are going to increase your money-making potential.  Stay away from any others.  For legitimate travel, you get airfare, rental car, tips, taxis, laundry, internet, and phone, as well as 50% of meals and any other reasonable and necessary expenses.  Travel assumes overnight trips away from your home area.

Cell phones, laptops, and tablets:  Do yourself a favor, get a business only laptop, cell phone, tablet and/or computer.  It is simply too difficult to calculate expenses on a part personal and part business electronic device.  Don't share your business number with friends and family (other than wife and kids).  If you keep everything separate, the deductions are easy and legitimate.  If you don't, you have to establish a business use percentage, and worry about listed property rules - which suck!

Vehicle Expenses:  Keep a mileage log.  Let me say it again, unless you have a vehicle that is 100%, no s**t, total business and no personal use, keep a mileage log.  Don't worry about gas, repairs, oil changes, insurance or any other car expenses (except as discussed above under insurance).  There are other ways to track vehicle expenses, but mileage is the best.  Do track annual car taxes and finance charges.  The easiest mileage log is a notebook where you write the date, the trip purpose and the miles driven.  You will also need to know the total miles the vehicle is driven for the year, so write the odometer reading down every January 1st!  Mileage will be one of your biggest expenses, so keep track of it religiously!  10,000 miles of properly tracked vehicle mileage can result in $1500 of tax savings!  Mile IQ is the absolute BEST way to track this.  It is a mobile phone app that AUTOMATICALLY tracks your mileage every time you drive.  Then a simple swipe categorizes it as business, personal, medical or charity.  You can add notes to each trip and print a report for filing taxes.  It even keeps a running total of your deduction amount!  It costs a small amount to use (which is deductible) but is a MUST!

Home Office:  Set aside a space in your home that is 100% business use.  Never used for anything else, and regularly used for business.  This is where you keep your business records, your business computer or laptop, make your sales calls from and meet clients.  The tax term is regular and exclusive business use.  If you do this, you deduct a percentage of the household expenses - rent, interest, taxes, utilities, insurance, repairs, etc, based on the square footage of the office ratioed to the home square footage.  Expenses directly related to the office, such as a dedicated phone line; do not have to be ratioed.  You can also take a small depreciation deduction for the home losing value (let your tax guy handle this - it's a b**ch!)  

Employer Reported Expenses:  In many cases, your employer is going to charge you for a number of different things like marketing and insurance.  They will generally track the expenses and then deduct them from your commission check when you make a sale or broker a purchase.  Virtually everything they charge you for will be deductible, but they will report the full amount of your commission on the 1099MISC at the end of the year, and then give you a report of what they charged you.  This simplifies things for record keeping, except that you need to make sure not to deduct something from the employer report twice by tracking it in your own records.

Depreciation:  Some items that you buy for your business, that have a useful life longer than a year will have to be depreciated over time rather than deducted all at once (examples include computers, digital cameras or office furniture).  There are many options for deducting it up front, but be wary of this, there are tripwires that can cost you if you dispose of something before it has passed its useful life.  Talk about these items with your tax advisor.

Record Keeping:  This is where the rubber meets the road.  Good record keeping will save you when it comes to tax time.  Your records don't need to be extensive, but they do need to be accurate and usable.  I hate double-entry bookkeeping and would never recommend it as a tool for a Real Estate Agent.  I also have found that the various bookkeeping software programs are virtually useless when it comes to taxes.  They may help when it comes to managing the business, but they suck for doing taxes.  The best and easiest record keeping method I've found for Real Estate Agents involves a small notebook, a big notebook and an envelope or box.  The small notebook is for mileage, discussed above.  The big notebook is for every other expense (except employer reported expenses.)  You need simple columns set up: date, expense, and cost.  You can add categories, but don't really need to, if you're unsure something's deductible, write it down and let your tax guy tell you if it's deductible.  The box/envelope is for receipts - just throw them in.  Really?  No sorting, categorizing or organizing?  No.  Simply put, your odds of ever needing them for an audit are slim to none.  Save the box, notebooks and tax returns for 7 years, and then throw it all away.  If you ever do get audited, there's plenty of time to sort through the box and organize it to match the notebooks - but why do it if it's not necessary.  If I'm doing your taxes I'm going to use the notebooks, and remind you that you should have a receipt for everything.  You don't have to prove things to me.


Separate Bank Account:  This one might be a little controversial, but I believe it's the be all end all of successful businesses.  Combined with record keeping discussions above, and budgeting discussions below, this will make everything easier.  Open a separate bank account for your Real Estate Agent business.  It doesn't have to be in a different name, just separate from your personal account.  If you use credit, get a second credit card that is exclusively for business (again, it doesn't have to actually be a business credit card, just one that you use only for business).  Put all Real Estate income in this account, and pay all Real Estate expenses out of it, or with the business credit card.  Pay off the business credit card out of this account.  The only expenses not paid out of the account are car expenses (especially gas) and home office expenses that will be divided based on square footage as discussed under home office above (utilities would not be paid out of the account, but office supplies and business only cell phone would).  The beauty of this method is that it simplifies budgeting as we'll discuss below, and it allows reconciling of expenses to make sure your notebook covers everything.  A good tax expert should be able to compare your account statements with your notebooks and know if you missed something (assuming you don't intermingle personal and business expenses).

Budgeting and Saving:  Now that you have an account that is separate for business, you can start thinking about budgeting.  Your income is going to fluctuate wildly, so you can use the business account to pay a "salary" to your personal account.  I recommend letting some money build up in the business account until you have a feel for your income level.  It will probably start small, but build up over time.  Once you have a good feel, you can pay yourself this salary.  The salary should be no more than 50% of your gross income or 60% of your net income.  You need to play around with it.  Start small and raise it if income exceeds expectations, but NEVER pay yourself more than 60% of net income.  Having a salary allows you to budget like you had a normal job.  Keeping a buffer amount in the account allows you to have a "salary" even during lean months.  By paying yourself a salary and saving the rest, if you have a really big month, you end up saving more, which in turn allows you to have the money to pay the tax bill that the big month will generate.  When you file your taxes, you should have plenty of money to pay the tax bill, and still have money left to maintain a buffer, and, if you're lucky, have the ability to pay yourself a bonus to your personal account for a big purchase or vacation!

Estimated Payments:  My advice is that you should use the budgeting advice above to pay your taxes.  You'll still need to make estimated tax payments if you're making good money, but you should pay the minimum required to avoid an underpayment penalty.  Your tax advisor will calculate them for you, but to explain simply: you need to pay at least as much as your prior year's total tax liability in withholding or estimated taxes to avoid a penalty (oversimplified explanation, but really all you need to know).  This is an easy calculation for your tax guy and he will set up quarterly payments and provide vouchers for paying them.  (The timing is a little weird.  You pay 4/15, 6/15, 9/15 and 1/15.)  You can also pay varying payments to try to avoid a tax bill, but it gets complicated, and the government won't pay you interest.

I hope you find this advice useful.  If you keep good records and separate personal and business expenses you'll make your tax guy's job easier, and pay the minimum in taxes.  If your tax guy sighs a lot while viewing your records, try harder next year.

If you are an experienced Real Estate Agent, help make this better by emailing me with any best practices you use, or anything I might have missed.  Feel free to leave a tip if this helps you save a bunch of money on your taxes!

As always, I’m available to answer questions at taxadvisor@email.com.  You might get a reply from a slightly different email address – that’s my phone.  It knows taxes better than I do so sometimes I let it respond!

Don't rush off!  I have a lot of other cool posts:

http://supertaxgenius.blogspot.com/2016/01/master-index-of-posts.html

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