As long as you send in an estimated payment by April 15, you can still file an extension and avoid underpayment penalties (but not interest on any outstanding balance if you’re a little off).
For the last couple of years, I have been filing extensions knowing I would be paying in but not having my corporate returns done in time for the exact numbers. I filed for corporate return extensions (done by March 15) and I made estimated payments with my filing extension by April 15. Even though I paid in a little extra interest with a small balance when I filed my personal returns later, I had paid enough on the personal returns by April 15 to avoid penalties.
Keep in mind that making estimated payments on time is separate from filing the actual return with the final numbers.
Can anyone tell me what i am doing wrong when filing my taxes. here is my complaint. i recently return from doing DOD work overseas and since i had no idea how to do the taxes for foreign duty i had a CPA do them for me. she said the only deductables i could receive was the interest on my two rentals and any amount for repairs. she said i couldn’t claim the home office and the deductables that came with it unless it total over $4,000. I currently do not have a business enity or anything. Will incorporating help me when i only have two rentals? (3 now) i had to pay over $10K for 2006 and over $10k for 2007. I keep reading the tax benefits of RE but i am not seeing it at all. Im just learning that the rent charged is counted as passive income even though a small portion of it is cashflow and the rest goes back to the mortgage lender.
I have to be missing something. Please help me see the benefits to investing in RE.
It sounds like the CPA got you through the tax preparation process cleanly provided she did not take the foreign income exclusion that you are not entitled to.
If your only “business” is a rental property activity, then incorporating won’t help your tax bill any. There aren’t any rental property expenses that you could take in a corporation that you could not take on your Schedule E (1040). Forming a corporation to hold your rental property just adds complexity and cost to your overhead with no real benefit if tax savings is your goal.
The problem with a home office deduction is that you have to itemize your deductions to get it. To benefit from itemizing, your itemized deductions must be greater than the standard deduction you are allowed (the standard deduction was $5350 per taxpayer for 2007). Additionally, most of your home office expenses taken on Schedule A will be miscellaneous deductions subject to a 2% rule. This means that only the amount of your miscellaneous deductions that exceed 2% of your adjusted gross income is allowed as an itemized deduction.
That tax is only on the RE investment right? The CPA got you your foreign income exclusion? You pay no tax on the first $85,700 you earned while working abroad if you were a resident there for most of the year.
I agree with the other posters - have a CPA who invests in RE or has lots of clients who invest in RE take a look for you, including filing any amended returns. You don’t need someone who just doesn’t know or who is learning on your dime.
Keep in mind that for businesses:
Income is earned, expenses are paid, the rest is taxed.
For individuals:
Income is earned, taxes are paid, you spend what’s left.
Having a business entity opens up a lot more deductions to reduce taxable income. Even if you don’t take a home office deduction on your residence, a business can still write off office furniture, supplies, computer equipment, etc.
As an interesting side note, filing an extension is one strategy to reduce the chance of audit. Also, your CPA will be able to look at it more carefully instead of during the tax season rush.
Just make sure you file an extension form and any estimated payments. Otherwise, there are underpayment penalties that can be incurred.
for your RE activities. If it is not a Schedule E, they are not competent to be doing your taxes and you need to change CPAs. File for an extension immediately, it gives you until OCT and is free (unless you owe, in which case you will need to pay interest on what you owe. But check the Sched E carefully. Any expense attributed to your rental business is deductible (advertising, utilities, repairs, etc.).
In anthropology, we do not refer to our periodic payments to gov’t as taxes, but as tribute.
Yes, you need different entities, but to reduce civil liability & protect individual properties.
CPA’s are like doctors & lawyers–they can assist (though sometimes they hinder_, but you are the responsible party. You must know what is best for yourself, in consultation w/the hired help. Education is much cheaper than experience, so start learning!
A home office is an invitation to an audit, so I never deduct that. I do, however, keep track of all mgt expenses, including auto.
As you grow, consider setting up your own property mgt entity.
Make sure your CPA is a specialist in REI, & consult well in advance the previous year to maximize potential deductions in each tax year. NOW is the time to plan for next year’s taxes.
Yes, you are right about the tax exemption on the 1st 85k, but as i found out late it is still counted as income and as for me it pushed me in a higher tax bracket. the onely reason i went with her in the 1st place was b/c my sister in law husband who has been overseas “like forever” recommended them to do xpats taxes. did i mentioned she said i could not use my vehicle, cell phone, or any other deductions unless it totalled over 4k. she did depreciate the properties, deducted the interest but gave me no advice on anything at all. what i learned was from asking her questions like what about this, and what about that. i hate to bad mouth her, but my 1st experience with a CPA definitely wasn’t a good one.
the bad thing is i had to use her twice to do my 2006 and a month later my 07 taxes.
Hey, it was an extremem learning experience, but By God’s grace i have survied to continue my lessons in life.
still i am left wondering where does the tax benefits for RE come from. so far, i have the depreciation, the deductable interest, and expenses for repair, am i missing something?
Thanks everyone, for your comments. i will start planning for 08 as of now. we(the CPA and I) did discuss depreciation briefly; i have to pay so i don’t think it would be wise to extend until Oct; I didn’t know this for 06 and paid over $3000 in penalties when i returned back to the states; Bottom line is i will research another CPA starting now and set up a meeting maybe in June when the tax rush is over. In the mean time i will gather all of my documents and prepare my questions. Again thanks for your input, you all have enlightened me.
You said you were a DoD employee posted overseas. The foreign income exclusion does not apply to income from the U.S. Government, or any U.S. government agency.
If the CPA took the foreign income exclusion, you should probably have your tax return redone by someone else. H&R Block advertises that they will give your return a second look for free.