10 Most expensive Tax Mistakes That Cost Real Estate Agents Thousands

Can I Deduct Cobra Health Insurance Premiums - 10 Most expensive Tax Mistakes That Cost Real Estate Agents Thousands

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Are you satisfied with the amount of taxes you pay? Are you obvious that you're taking advantage of every available tax break? But most of all, is your tax preparer giving you proactive advice to save on your taxes?

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Can I Deduct Cobra Health Insurance Premiums

The bad news is that you probably do pay too much tax and you're probably not taking advantage of every tax break. And most preparers do a poor job of admittedly recovery their clients money.

The good news is that you don't have to feel that way. You just need a better plan. This report reveals some of the biggest tax mistakes that company owners make. Then, it gives brief solutions to admittedly solve these problems. Please note that this report is designed to be an informational tool only. Before you implement any of these strategies, you should consult a tax pro for more specific guidelines and requirements.

#1: Failing To Plan

The first mistake is the biggest mistake of all. It is failing to plan. It doesn't matter how good your tax preparer is with your stack of receipts on April 15. If you didn't know that you could write off your kid's braces as a company expense, it's too late to do anything when your taxes are ready the following year.

Tax coaching is about giving you a plan for minimizing your taxes. What should you do? When should you do it? How should you do it?

And tax coaching offers two more noteworthy advantages. First, it's the key to your financial defenses. As a real estate agent, you have two ways to put more cash in your pocket. Financial offense is addition your income. Financial defense is reducing your expenses. For most agents, taxes are their biggest expense. So it makes sense to focus your financial defense where you spend the most.

And second, tax coaching guarantees results. You can spend all sorts of time, effort and money promoting your business. But that can't warrant results. Or you can set up a medical cost reimbursement plan, deduct your daughter's braces, and warrant tax savings.

#2: Misunderstanding Audit Odds

The second big mistake is nearly as prominent as the first, and that's fearing, rather than respecting the Irs.

What does the kind of tax planning we're talking about do to your odds of being audited? The truth is, most experts say it pays to be aggressive. That's because comprehensive audit odds are so low that most legitimate deductions aren't likely to wave "red flags."

Audit rates are admittedly as low as they've ever been for 2008 - the comprehensive audit rate was just one in every 99 returns. Approximately half of those audits targeted the Earned revenue Tax reputation for low-income working families. The Irs primarily targets small businesses, especially sole proprietorships, and cash industries like pizza parlors and coin-operated laundromats with opportunities to hide revenue and skim profits.

#3: Too Much Self-Employment Tax

If you're like most company owners, you pay as much in self-employment tax as you do in revenue tax. If that's the case, you might consider setting up an "S" corporation or slight liability company to sacrifice that tax.

If you run your company as a sole proprietor, you'll report your net revenue on agenda C. You'll pay tax at anything your personal rate is. But you'll also pay self-employment tax of 15.3% on your first 6,800 of "net self-employment income" and 2.9% of anything above that in 2010.

Let's say your behalf at the end of the year is ,000. You'll pay revenue tax at your regular tax rate, depending on your total assessable income. But you'll also pay about ,200 in self-employment tax. This tax replaces the group security and Medicare tax that your manager would pay and sustain if you weren't self-employed.

An "S" corporation is a special corporation that's taxed like a partnership. The corporation pays the owners a reasonable wage for the work they do. If there's any behalf left over, it passes through to the shareholders, and the shareholders pay the tax on their own returns. So the "S" corporation splits the owner's revenue into two parts, wages and pass-through distributions.

"S" corporations are so absorbing because even though you pay the same 15.3% on your wages as you would on your self-employment income, there is no group security or self-employment tax due on the dividend pass-through. Let's say your S corporation earns the same ,000 as your proprietorship. If you pay yourself ,000 in wages, you'll pay about ,600 in group security taxes. But you'll totally avoid ,600 in self-employment tax on the ,000 pass-through distribution.

The "S" corporation takes a slight more paperwork to operate than the proprietorship. And you have to pay yourself a reasonable wage for your service. That means something like you'd pay for an face worker to do the same work. But the Irs is on the watch for agents who take all their revenue as pass-through. The reasonable wage for agents varies, depending on the amount of time spent on real estate activities and your location.

#4: Wrong withdrawal Plan

If you want to save more than the current ,000 limit (additional ,000 for taxpayers 50 or older) for Ira's, you have three main choices: Simplified worker Pensions (Seps), uncomplicated Iras, or 401ks. Generally, if you have a company withdrawal plan, it must be offered to all your employees and the calculations for contributions must be applied in the same manner as for yourself or any house employees.

The Sep and uncomplicated Iras are the easiest plans to set up and administer. There's no every year supervision or paperwork required. Contributions are made directly into worker withdrawal accounts. For Sep plans, self-employed individuals can conduce up to 25% of your "net self-employment income," to a maximum of ,000 for 2010. For uncomplicated Iras, the maximum offering for 2010 is ,500 (50 or older can conduce an extra ,500 catch-up.) uncomplicated Iras may be best for part-time or sideline businesses earning less than ,000. You can also hire your spouse and children, and they can make Sep or uncomplicated contributions.

For even larger withdrawal contributions not slight to 25% of your self-employment income, consider a 401(k) withdrawal plan. You can even set up what's called a "solo" or "individual" 401(k) just for yourself. The 401(k) is a true "qualified" plan. And the 401(k) lets you conduce far more money, far more flexibly, than either the Sep or the Simple. For 2009, you and your employees can "defer" 100% of your revenue up to ,500. If you're 50 or older, you can make an extra ,500 "catch-up" contribution. You can also pick to match your employees' contributions, or make profit-sharing contributions up to 25% of their pay. That's the same percentage you can save in your Sep - on top of the ,500 or ,000 deferral, for a total maximum offering of ,000 per someone in 2010. 401(k)'s are commonly more difficult to administer. There are anti-discrimination rules to keep you from stuffing your own account while you stiff your employees. Like Seps and uncomplicated Iras, you can still hire your spouse and conduce to their account.

If you're older and you want to conduce more than the ,000 limit for Seps or 401(k)'s, consider a former defined advantage pension plan where you can conduce an amount to warrant up to 5,000 in every year income. Defined advantage plans have required every year contributions. But you can incorporate a defined advantage plan with a 401(k) or Sep to give yourself a slight more flexibility.

#5: Missing house Employment

Hiring your children and grandchildren can be a great way to cut taxes on your revenue by shifting it to someone who pays less.

The Irs has upheld deductions for children as young as 7. Their first ,700 of earned revenue in 2010 is taxed at zero to the child. That's because of the acceptable deduction for a single taxpayer - even if you claim them as your dependent. Their next ,375 is taxed at just 10%. So, you can shift quite a bit of revenue downstream. You have to pay them a "reasonable" wage for the aid they perform. This is what you would pay a industrial vendor for the same service, with an adjustment made for the child's age and experience. So, if your 12-year-old son cuts grass for your rental properties, pay him what a landscaping aid might charge. If your 15-year-old daughter helps keep your books, pay her a bit less than a bookkeeping aid might charge. To audit-proof your return, write out a job report and keep a timesheet. Pay by check so you can document the payment. You have to deposit the check into an account in the child's name. But the account can be a Roth Ira, Section 529 college savings plan, or custodial account that you operate until they turn 21. If your company is unincorporated, you don't have to sustain for group security until they turn 18. So this admittedly is tax-free money. You'll have to issue them a W-2 at the end of the year. But this is painless compared to the tax you'll waste if you don't take advantage of this strategy.

#6: Missing medical Expenses

Surveys used to show that taxes were small company owners' main concern. But now it is skyrocketing condition care costs. If you're self-employed and pay for your own condition insurance, you can deduct is as an adjustment to revenue on Page 1 of Form 1040. If you itemize deductions, you can deduct unreimbursed medical and dental expenses on agenda A, if they total more than 7.5% of your adjusted gross income. But most of us don't spend that much.

But there is a way to write off all your medical bills as company expenses. It's called a medical cost reimbursement Plan (Merp), or Section 105 Plan. This is an worker advantage plan, which means it requires an employee. If you operate your company as a sole proprietorship, partnership, Llc, or S corporation, you're carefully self-employed and don't qualify. But if you're married, you can hire your spouse. If you're not married, you can do this with a C corporation. But you don't have to be incorporated. You can do this as a sole proprietor or Llc by hiring your spouse.

The one irregularity is the S corporation. If you own more than 2% of the stock, you and your spouse are both carefully self-employed for purposes of this rule. You'll need to use someone else source of income, not taxed as an S corporation, as the basis for this plan.

Let's say that you are a self-employed real estate agent and you've hired your husband. The Merp plan lets you reimburse your worker for all medical and dental expenses he incurs for his entire house -including you as his spouse. All of these expenses qualify for reimbursement: major medical insurance, long-term care coverage, Medicare and Medigap insurance, co-payments, deductibles, prescriptions, dental care, eye care, chiropractic care, orthodontists, fertility treatments, special schools for learning-disabled children, vitamins and herbal supplements, medical supplies and even over-the-counter medicines.

You can reimburse your worker or pay condition care providers directly. You will need a written plan document and a formula to track your expenses. There's no special reporting required. You'll save revenue tax and self-employment tax.

If you have non-family employees, you have to comprise them too, but you can exclude employees who are: under age 25, work less than 35 hours per week, work less than nine months per year, or have worked for you less than three years. Non-family employees may make it too high-priced to reimburse every person as generously as you would cover your own family. But, if you're offering condition insurance, you can still use a Section 105 plan to cut your worker advantage cost. You can do it by switching to a high-deductible condition plan, and using a Section 105 plan to replace those lost benefits.

For example, a married self-employed agent with two children pays 25% in federal revenue tax and 15.3% in self-employment tax. A former guarnatee plan was substituted with a high-deductible plan - ,000 for the house which cut his selected by ,620. So, even if he hits that ,000 deductible, he saves ,620 in premiums. And now, since he deducts his medical costs from his company income, his self-employment tax savings add someone else ,156 to his lowest line. He'll save at least ,121 in taxes by switching from his former healthcare plan to the Section 105 medical cost reimbursement Plan.

If you can't use a medical cost reimbursement Plan, consider the new condition Savings Accounts. These arrangements incorporate a high-deductible condition plan with a tax-free savings account to cover unreimbursed costs.

To qualify, you'll need a "high-deductible condition plan" with a deductible of at least ,200 for singles or ,400 for employees and an out-of-pocket limit of ,950 for singles or ,900 for families in 2010. Neither you nor your spouse can be covered by a "non-high deductible condition plan" or Medicare. The plan can't contribute any benefit, other than obvious preventive care benefits, until the deductible for that year is satisfied. You're not eligible if you're covered by a isolate plan or rider offering prescription drug benefits before the minimum every year deductible is satisfied.

Once you've established your eligibility, you can open a deductible condition savings account. You can conduce 100% of your deductible up to ,050 for singles or ,150 for families. You can use it for most kinds of condition insurance, including Cobra continuation and long-term care plans. You can also use it for the same sort of expenses as a Section 105 plan.

The condition Savings account isn't as essential as the Section 105 plan. You've got specific dollar offering limits, and there's no self-employment tax advantage. But condition Savings Accounts can still cut your comprehensive health-care costs.

#7: Missing A Home Office

If your home office qualifies as your essential place of business, you can deduct a portion of your rent, mortgage interest, property taxes, insurance, home maintenance and repairs and utilities. You will also depreciate your home's basis over 39 years as nonresidential property.

To qualify as your essential place of business, you must (1) use it "exclusively" and "regularly" for menagerial or supervision activities, and (2) have no other fixed location where you conduct mountainous menagerial or supervision activities of your trade or business. "Regularly" commonly means 10-12 hours per week. The space doesn't have to be an entire room.

Your company use percentage is calculated by either dividing the amount of rooms used by the total rooms in the home if they are Approximately equal, or by dividing the quadrate feet used by the total quadrate footage in the home. special rules apply when you sell your sell your home, but the home office deduction is still a very essential deduction for most agents.

#8: Missing Car/Truck Expenses

If you take the acceptable mileage deduction for your business, you may be seriously shortchanging yourself. Every year there are various car operating surveys that are published. Costs vary according to how much you drive - but if you're taking the acceptable deduction for a car that costs more than 50 cents/mile, you're losing money every time you turn the key. If you're taking the acceptable deduction now, you can switch to the "actual expense" formula if you own your car, but not if you lease. You also can't switch from actual expenses to the acceptable deduction if you've taken accelerated depreciation on the vehicle.

#9: Missing Meals & Entertainment

The basic rule is that you can deduct the cost of meals with a bona fide company purpose. This means clients, prospects, referral sources, and company colleagues. And how often do you eat with someone who's not one of those people? For real estate agents and other professionals that shop themselves, this might be "never." Generally, you can deduct 50% of your meals and entertainment as long as it isn't "lavish or extraordinary."

You don't need receipts for company expenses under (except lodging), but you need to report the following information: (1) How much?, (2) When?, (3) Where?, (4) company Purpose?, and (5) company Relationship.

You can also deduct entertainment expenses if they take place directly before or after substantial, bona fide consulation directly associated to the active conduct of your business. You can deduct the face value of tickets to sporting and theatrical events, food and beverages, parking, taxes and tips.

#10: Failing To Plan

Now that you see how real estate agents like you miss out on any so many tax breaks, you should comprehend what the biggest mistake of all is - failing to plan. Have you ever heard the saying "if you fail to plan, you plan to fail?" It's a cliché because it's true.

With just a uncomplicated venture of your time, you can implement essential tax-saving strategies that will make a major discrepancy come April 15.

I hope you have new knowledge about Can I Deduct Cobra Health Insurance Premiums. Where you can put to use within your everyday life. And just remember, your reaction is passed about Can I Deduct Cobra Health Insurance Premiums.