Episodes

  • #23: Seas the Deduction: Business Travel on Cruises Explained

    #23: Seas the Deduction: Business Travel on Cruises Explained
    Oct 3 2024
    If you've considered attending a cruise that relates to your business-you won't want to miss this episode. Learn the ways you can and can't write off a cruise as a business expense. Facebook Group for Tax ProfessionalsFacebook Group for Real Estate Investors [00:00:00] [00:00:00] Welcome to Real Estate is Taxing, where we talk about all things real estate tax, and break down complex concepts into understandable, entertaining tax topics. My name is Natalie Kolodij, I'm your host, and I am so excited that you've decided to join me.[00:00:23] Hello. Hello everyone. And welcome to this week's episode. The past several months, I have attended multiple conferences, tax conferences, real estate conferences, all across the country. Various venues. And it got me thinking about one of my favorite travel business topic. Overlaps. Which is when you can and when you can not. Deduct travel on a cruise ship. [00:00:53] There's a lot of blogs and articles out there, but they're all fairly vague or they give very [00:01:00] generalized steps and don't really talk about the feasibility of it. Or actual examples of it. I spent some time today searching for some court cases related to this topic. And there really aren't any specific to cruise ship travel as its own deduction. [00:01:19] I couldn't find it as a focus point of a case. I did find some court cases that were semi-related we'll chat about one of those at the end. But outside of that, there's not a ton of guidance because it's pretty cut and dry. [00:01:34] [00:01:34] The code section for this hasn't changed since 1982. So there haven't been any big updates or anything that really needed to be contested in recent years. So let's get into it. There are two different ways you can potentially write off a cruise as a business expense. Both of these are covered in code section [00:02:00] 2 74 M and they are split between addressing conventions on cruise ships. And then a secondary category known as luxury water travel. So starting off with conventions on cruise ships. This is something that I hear about pretty often. I think anyone in the tax industry and real estate in a lot of industries, There are multiple cruises per year related to most industries that you can choose to attend. [00:02:33] It will be in most cases, a seven day cruise. They will buy a room block the same way they would for a conference at a hotel or a resort. And then everything takes place on the cruise. There are however many hours of education. There are, different conference related events and networking. [00:02:51] They're renting out general speaking areas. And attendees pay for the room. And the cruise fare, it's all typically rolled [00:03:00] into one price. So these are marketed pretty frequently. And I have most often seen these marketed as a deductible business expense. But the truth of it is very rarely. Is a conference or an educational event on a cruise ship. Going to just easily be deductible. So let's start off with the first. Addressing of this. [00:03:29] So let's look at how the code words, this. In the case of any individual who attends a convention, seminar, or other meeting, which is held on any cruise ship. No deduction shall be allowed under section 1 62 for expenses allocable to such meeting. Unless the taxpayer meets the requirements of paragraph five. And establishes that the meeting is directly related to the active [00:04:00] conduct of his or her trade or business. So code section 1 62. Is the part of the tax code that explains ordinary and necessary business expenses. As a starting point, attending a convention seminar, et cetera, on a cruise ship. Is only a business deduction. If it directly relates to the taxpayers ongoing trader business, that makes sense. Next part. Again, it is directly related to the active conduct of his or her trader business. And that, and then it goes on to list two requirements. Requirement number one, the cruise ship is a vessel that is registered in the United States. And requirement number two. All ports of call of that cruise ship are located in the United States or in possession of the United States. [00:04:53] So when we just start off with looking at these two initial requirements, I will [00:05:00] let you guess how many cruise ships you think fit the bill? If we are looking at large commercial cruise lines. there's a thousand, 2000 people on board, maybe more. It normally is a week long, goes out to a few islands, go somewhere else. But we're not talking about like a river cruise or one of those little boats that'll fit like a hundred to 300 people, But one of those large commercial cruise ships, where there is a buffet and like a kid's club and water slides and all of that. One we're looking at that level of cruise ship. There is one. Singular ship that meets the requirement. Norwegian cruise lines, pride of America based in Hawaii is us registered. And it is the only large commercial cruise lines, cruise ship. That is...
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    21 mins
  • #22: Rulings & Real Estate: Unpacking Two Critical 2024 Tax Court Cases

    #22: Rulings & Real Estate: Unpacking Two Critical 2024 Tax Court Cases
    Sep 26 2024
    Join me as I dive into two real estate focused Tax Court cases from summer of 2024. There's always something interesting to be learned when it comes to court cases. Facebook group for Real Estate InvestorsFacebook group for Tax Professionals TC Summary 2024-17TC Summary 2024-13 [00:00:00] Welcome to Real Estate is Taxing, where we talk about all things real estate tax, and break down complex concepts into understandable, entertaining tax topics. My name is Natalie Kolodij, I'm your host, and I am so excited that you've decided to join me.[00:00:23] Hello. Hello everyone. Welcome to this week's episode. This summer has been a pretty good summer for tax court cases. And what I mean is that there have just been several that I specifically have enjoyed and thought were interesting. And that's because there have been a handful that relate to real estate. [00:00:45] [00:00:46] Now I love anything court related. I love reading true crime books. I love listening to the podcast. So for me, Reading tax court cases is extra exciting. But even [00:01:00] if you do not find that as cool as I do. These are still something that you should hold at least a little bit of interest in. The tax code itself is very rarely black and white. [00:01:12] There's a lot of room for interpretation. There's a whole lot of guidance and nuance that happens after the code is written. And the tax court results are really just one of those pieces of guidance. Reading these court cases. Really does give us fantastic insight to the way the courts have been leaning on some of these topics that are in that gray area. And when it comes to real estate, there's plenty of gray area that we love playing in with the tax code. So getting these more recent kind of thoughts from the tax court. Getting this feedback, seeing how they're viewing things. [00:01:55] This is invaluable. What I have for you guys today. [00:02:00] Is two court cases that are both tax court summary opinions from this summer. So these are super recent from July and August. And both are related to real estate. [00:02:11] The first case that I want to walk you guys through is from last month, this came out August 20, 24. This is TC summary, 2024 dash 17. Eason V commissioner. So this case was interesting because it deals with a topic that comes up pretty frequently when it comes to real estate in two different capacities. The first one being, if you pay for one of those 40, 50, $60,000 real estate guru courses, is it deductible? [00:02:45] And when is, or isn't it. And the other part of the question being, if you are new in real estate. When does your business actually begin? When are you open for business where you can start writing [00:03:00] off? All of your costs that are incurred. So those were the two big questions that came up in this case. [00:03:08] So this summary opinion relates to a couple who owned two rentals in 2016. One of them, they maintained as a rental. The second rental property they had sold by June of 2016. So at this point, they've got a little bit of real estate experience. They just actively got rid of half of their real estate business that existed, so to speak. [00:03:33] So they've got one rental left. [00:03:35] That same year. The taxpayer in this case. Lost his job. Close to the beginning of the year, the taxpayer lost his job. And the couple started looking into other ways they could supplement their income and other opportunities to help make up. For that last paycheck, they were used to getting. And one of the things they came across was real estate investing. So [00:04:00] they were already a little bit familiar with it and they had some experience with rentals, but they stumbled across an ad for a real estate course or courses that you could take. That would teach you how to invest presumably. In some capacity. The court case does not go into the details. Of exactly what was covered in that course or those courses. But what it does say is that the taxpayer and the spouse decided to invest in this And they spend $41,934 on two different courses from this same real estate. Uh, quote, education provider. So once they bought these courses, The couple, then went on to set up an S corporation. So they established an S Corp in July of 2016. And they got some business cards. They got some custom branded stationary. [00:05:00] But outside of that, Nothing else really happened. So there was no additional purchases of real estate. There were no proven efforts at marketing. For a real estate. [00:05:14] There was no proven efforts at advertising that they were in the market to buy real estate. Really not a whole lot else happened after they set up this S corporation and bought some business cards. Also worth noting. Is that by 2018. So within a year and a half from when they purchased these large expensive courses. The company through whom they had bought the courses. Went out of business. So another piece to this specific case that was taken...
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    21 mins
  • #21: - Head Start on 2024: Preparing as a 1065 or 1120S Filer Without Books

    #21: - Head Start on 2024: Preparing as a 1065 or 1120S Filer Without Books
    Sep 19 2024
    Anyone with a 1065 Partnership or 1120-S S-Corporation should have bookkeeping in my opinion, but if you don't...this episode is for you. This is your head-start on getting everything together for your tax professional to file your 2024 business tax return. Facebook Group for Tax Professionals Facebook Group for Real Estate Investors Introduction[00:00:00] Welcome to Real Estate is Taxing, where we talk about all things real estate tax, and break down complex concepts into understandable, entertaining tax topics. My name is Natalie Kolodij, I'm your host, and I am so excited that you've decided to join me.[00:00:23] Hello. Hello everyone. We have just made it past the first fall extension deadline. Any 10 65 partnerships or 1120-S S corporations were due on September 16th this year. So we've just passed that hurdle. And part of what I realized this year is that there are a lot of people who don't know they've created an entity.[00:00:49] They're not aware that they have a partnership. I've talked about this before. Or there are people who create the entity, they create a partnership or they create an S corporation, but they don't really know. Or their tax professional didn't give them a good rundown on what the differences are, what is required for filing, and what will be different because you now have this entity.[00:01:12] So if you are someone who has a partnership or an S corporation, and you do not have formal bookkeeping, you don't have full QuickBooks, you don't have a bookkeeper, then this episode is for you. So I will note if you are using Tessa for your rental properties and you have a partnership, this is not formal bookkeeping.[00:01:33] It's not a true bookkeeping system or a true double-entry platform. So while Tessa is great for keeping track of a profit and loss, and just keeping track of your income and your expenses for a property, once you move into a separate tax return, once you move into a 10 65 partnership filing, there's more information we need to keep track of, and it doesn't do this very well.Preparing for 2024 Tax Year[00:01:57] For today's show, I'm going to talk through some of the differences, like why we need more information for these returns and what information you should start gathering now to help prepare for the upcoming filing for the 2024 tax year.[00:02:18] So I'm trying to give you a little bit of a head start. It's quarter four, so you have time to either find and hire a good bookkeeper to help you get books before the end of the year or start gathering all of the information I'm going to talk about so that you have a jump on all of the information your accountant is going to need. If you go to a tax professional and they're not asking for all of this information, while they might technically be doing your tax return, they're doing it in the most surface level numbers on forms way possible.[00:03:00] What kind of talk about that a little bit more. But I recently had a new client who went to a large well-known tax and attorney firm. And last year for their entity return, where they didn't have full books, they just had the client complete an organizer.[00:03:09] So they just used whatever information he told them—whatever amounts for bank account balances, etc. They did not ask for any of the actual documents to check any of this. And if that's the case, there's close to a 0% chance your return is accurate.Costs of Entity Creation[00:03:27] So let's dive into it. Let's start off with what happens when you create a partnership or an S-corporation.[00:03:35] The first thing that I want people to consider when they are creating a partnership or creating an S corporation is that this creates a whole new, additional tax return. So there's a whole separate filing. Even though something might not have changed with your business last year, you might've had two rentals and they were on your personal return, and this year you have two rentals and now they're in a partnership, there's a whole additional filing.[00:04:05] Entities require more information. There's more we have to track, and there's more you have to do. So the first consideration I want you to be aware of if this is going to be your first year with a partnership or an S-corp is that it's going to cost more money if you go somewhere to have your taxes done.[00:04:21] Now how much more it's going to cost, I can't say for sure because different firms, different locations, and different levels of expertise or specialization are going to impact that pricing. But like with anything, there's going to be higher-end and lower-end and everything in between. The same way you can get a steak at an Applebee's for $8.99, or you can go to a Ruth’s Chris and pay $89, it's across the board.[00:04:50] The price point I most often see for entity preparation at better tax firms is going to be a minimum of $1,500 to $2,000 per return for just the filing.[00:05:02] So keep that in mind when you're looking to create an ...
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    30 mins
  • #20: September 16th Filing Deadline- Are you ready?

    #20: September 16th Filing Deadline- Are you ready?
    Sep 12 2024
    September 16th is the filing deadline for S-Corporations and Partnerships that filed for a 6-month extension. In this episode we'll discuss what creates those entities, some options if yours may be late, and a few other nuances to make this week a little easier. Facebook Group For Tax Professionals Facebook Group For Real Estate Investors IRS List of Qualified Disaster Areas Rev-Proc 84-35 Introduction to the September 15th (16th) Deadline[00:00:00] Hello. Hello everyone. And welcome to today's show. So we are only a few days away from the extended deadline for entity tax returns. This deadline specifically applies to pass-through entities, which typically include partnerships and S-Corporations. Normally, this deadline is September 15th, but this year, because the 15th falls on a weekend, the deadline is technically extended to Monday, September 16th. While this is the extended deadline for entities, keep in mind that the extended personal tax return deadline remains October 15th.--- Entities Affected by the Deadline[00:00:37] Today’s show is going to focus on the September 15th (16th) deadline—who it applies to, common misconceptions about it, and what your options are if you think you might miss this deadline. To start, this deadline applies to S-Corporations and partnerships, both of which are pass-through entities. These tax returns are typically due on March 15th. However, if you filed for an extension, you were granted an additional six months to file, pushing the deadline to September 15th (or 16th this year). It’s important to note that an extension to file does not mean an extension to pay any taxes owed, just like with your personal return.--- Recap: What Are S-Corps and Partnerships?[00:01:18] Let’s quickly recap what qualifies as an S-Corporation or a partnership. Many people may not even realize that they have one of these entities. An S-Corporation is either a C Corporation that has elected to be taxed as an S-Corp or an LLC that has chosen to be taxed as an S-Corp. To make this election, you would file Form 2553. You don’t need to change your LLC into a corporation first—it’s a single step to make this election. On the other hand, partnerships are formed in various ways, but they typically involve more than one person operating the business. Even without a formal entity, if more than one person is involved, you may have created a partnership. ---Understanding Partnerships: Common Situations[00:02:28] The other common type of entity that is affected by this deadline is partnerships. Partnerships can be formed in a variety of ways, but the most common is the general partnership, where more than one person operates a business, even without a formal legal entity. Additionally, any LLC with more than one member (a multi-member LLC) will generally be considered a partnership for tax purposes unless it has made a different tax election. This often surprises people, as they might set up an LLC and add a spouse or a business partner without realizing they’ve created a partnership, requiring them to file Form 1065, the partnership tax return. For example, if you and a friend create an LLC to invest in real estate and split the proceeds 50/50, you’ve inadvertently formed a partnership and must file the corresponding tax return.---When a Multi-Member LLC is a Partnership[00:03:31] This situation is particularly common with multi-member LLCs. Often, people will set up an LLC and add their spouse to it, not realizing that in many states, they are now required to file a partnership return. Another frequent scenario occurs when individuals join forces for a small business venture, such as a real estate deal with a friend, where they both list themselves as owners on the LLC. Without knowing it, they’ve created a partnership and will need to file Form 1065. However, there is an exception for married couples in community property states: if the only members of the LLC are you and your spouse, and you live in a community property state, you may not have to file a partnership return at all. Instead, you might be able to treat the LLC as a disregarded entity.--- Special Considerations for Married Couples in Community Property States[00:04:27] If you are married and live in a community property state, and the only members of your multi-member LLC are you and your spouse, you might be able to treat the LLC as a disregarded entity, avoiding the need to file a partnership return. If you and your spouse are operating a business without any formal entity, you have the option of filing as a qualified joint venture. In this case, you would each report your share of the business income and expenses on separate Schedule C forms as part of your individual tax returns, instead of filing a partnership return. These are a few nuances where you might not be required to file a partnership return, but in most cases, having a multi-member LLC will necessitate filing Form 1065.---Filing Deadline for ...
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    18 mins
  • #19: 121 Exclusion Examples, Timing = Taxes

    #19: 121 Exclusion Examples, Timing = Taxes
    Sep 5 2024
    Examples of the 121 Exclusion which showcase how small changes, can lead to huge tax impacts. In this episode of 'Real Estate is Taxing,' host Natalie Kolodij breaks down the intricacies of the 121 exclusion, which allows homeowners to exclude a significant amount of capital gains on the sale of their primary residence. . She details various scenarios to highlight how specific timelines and conditions—such as rental periods, military duty, and temporary absences—affect eligibility for the exclusion. By understanding these nuances, listeners can avoid costly tax errors and optimize their exclusion benefits.IG: @RE_Tax_Strategist Transcript [00:00:00] Welcome to Real Estate is Taxing, where we talk about all things real estate tax and break down complex concepts into understandable, entertaining tax topics. My name is Natalie Kolodij I'm your host, and I am so excited that you've decided to join me.[00:00:23] Have you ever pulled into the McDonald's drive through at 10 40 in the morning on a Sunday to get McDonald's breakfast? Only to find out the location near your house stopped serving breakfast at 10 30, you just missed it. And you were so sure you had till 11 o'clock to get that. Amazing egg McMuffin. [00:00:45] You've been thinking about all week. Imagine that feeling times a thousand or more. That's what today's episode is about. And the best way I could think of. To describe the [00:01:00] impact of when someone thinks they are going to qualify. For the full 1 21 exclusion and have up to a half million dollars tax free. Only to find out that the timing or the way they executed it fell a little bit short. On today's episode. I'm going to walk you guys through several different scenarios of the potential application of the 1 21 exclusion. And really point out the way a few key, little bitty timing impacts. Can lead to either a partial exclusion or in some cases, no exclusion at all. When this comes up, it is obviously something that people are pretty upset to find out. So hopefully hearing this episode ahead of time will prevent a few people from living through that experience. [00:02:00] [00:02:00] And maybe this episode will also remind you to check the cutoff time for your egg McMuffin this weekend. [00:02:06] You are the guardian of your own destiny. So let's get into things, manifest it, and to make sure we are not missing these crucial timing cutoffs. [00:02:16] [00:02:16] If you knew me, you know, the 1 21 exclusion is a code section that I can talk about for hours and hours and hours, there is so much unique complexity to it. For today's episode, we are just going to break it down into a few simplistic parts. We're taking this at a thousand foot view. So that you can recognize the reason why these situations we're going to walk through will or will not work. [00:02:43] And you'll be able to see how these small timing differences can create a huge difference in the taxable outcome. The 1 21 exclusion. Allows a taxpayer to exclude up to [00:03:00] $250,000 of gain or 500,000 if married. On the sale of their primary home, as long as they have owned and occupied it for two out of the most recent five years. [00:03:13] The first nuance to break out. That will relate to today's episode. Is those two out of five years are actually a calculation to the literal day. So two years is actually 730 days. Five years is going to be 1,825 days. For simplicity, we're ignoring leap years. So it is a literal to the day calculation. That's why a slight misjudgment on when you should move or sell, et cetera. Can have a huge impact. The next piece to be aware of for today's episode is something called non-qualified use. In a nutshell, any time when [00:04:00] that primary home. Is used for something other than being a primary home. Those years are considered. [00:04:06] Non-qualified use. And the gain related proportionately to those years. Typically can't be excluded under the 1 21 exclusion. Now this code provision didn't come into play until 2009. So any time of non-qualified use before that. Doesn't count does not come into play here. And there are also three key exclusions. To what is considered non-qualified use. The first one would be any rental use. That occurs after. The taxpayer's most recent use of the home as a primary residence. The second exclusion. Is if someone is active duty military. They can have potentially up to a 10 year gap. Due to [00:05:00] being active duty. Where that time, where the home is rented or not being used as a primary home. That does not count as non-qualified use. And the final exclusion. Is that a taxpayer can have up to a two year temporary absence. That can be disqualified from being non-qualified use. [00:05:21] So if there's a temporary absence of. Two years or less. Due to a health circumstance or a job related change or some kind of major unforeseen circumstance. That two year or less window also does not count against the calculation for the gain as ...
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    27 mins
  • #18: 1099 Trouble: Are You at Risk?

    #18: 1099 Trouble: Are You at Risk?
    Aug 29 2024

    3 Common Mistakes When Issuing 1099 Forms

    Episode 17: Hiring Your Kids: Tax Savings Strategy Or Really Risky Move

    https://www.natalie.tax

    https://www.incite.tax



    In this episode of 'Real Estate is Taxing,' host Natalie Kolodij breaks down the three common mistakes made by business owners when issuing 1099 forms. She discusses the misclassification of children employed in the business, the obligations of landlords operating rental properties, and the incorrect issuance of 1099s to owner shareholders who should be receiving wages.

    00:00 Introduction to Real Estate Taxing
    00:23 Common Mistakes in Issuing 1099s
    00:44 Employing Your Children: Tax Strategies and Pitfalls
    03:36 Landlords and 1099 Requirements
    06:38 1099s for Shareholders: Avoiding Common Errors
    11:20 Conclusion and Final Advice
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    13 mins
  • #17: Hiring Your Kids: Tax-Saving Strategy or Really Risky Move?

    #17: Hiring Your Kids: Tax-Saving Strategy or Really Risky Move?
    Aug 22 2024

    Maximize Tax Benefits by Employing Your Children: Key Strategies and Pitfalls

    https://www.natalie.tax

    https://www.incite.tax

    In this episode of 'Real Estate is Taxing,' host Natalie Kolodij delves into the strategy of employing your children in your business.

    She outlines the numerous benefits, including significant tax savings and the opportunity to fund a Roth IRA at an early age. Natalie also discusses crucial compliance requirements to avoid costly mistakes, such as treating the children as actual employees, paying reasonable wages, and issuing W-2 forms instead of 1099s.

    The episode provides essential guidelines to help business owners implement this strategy correctly and reap the financial advantages.

    00:00 Introduction to Real Estate Taxing
    01:41 Why Employing Your Children is Beneficial
    02:29 Tax Benefits of Employing Your Children
    08:17 Common Mistakes to Avoid
    13:50 Entity Types and Payroll Taxes
    14:55 Proper Documentation and Compliance
    23:59 Recap and Final Thoughts
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    27 mins
  • #16: How Much Should I Pay A Tax Professional?

    #16: How Much Should I Pay A Tax Professional?
    Aug 15 2024

    How much should you be paying a tax professional?

    Share your thoughts on Facebook:

    Real Estate Investors:
    https://www.facebook.com/groups/REIKnowledgeVault

    Tax Pros:
    https://www.facebook.com/groups/realestatefortaxpros

    Share your thoughts on IG:
    https://www.instagram.com/re_tax_strategist/

    In this episode, we delve into the complexities of determining the cost of tax preparation and planning. Using a real-world example where someone faced a significant tax bill, we explore the core factors that influence these costs. We dissect the differences between tax preparation and tax planning, both of which can vary significantly in price. We also discuss the current shortage of skilled tax professionals in the industry, exacerbated by high retirement rates and the impact of COVID-19. Finally, we touch on how individual circumstances uniquely shape the cost of tax services. Tune in to gain valuable insights into why tax preparation prices can be so varied and what you can expect when seeking professional tax services.

    00:00 Introduction: Shocking Tax Preparation Costs
    00:28 Understanding Tax Return Pricing
    01:44 Tax Preparation vs. Tax Planning
    01:57 The Impact of Industry Shortages
    07:01 Supply and Demand in Tax Services
    14:49 Common Misconceptions and Translations
    25:35 National Survey Insights
    32:07 Conclusion: What Should You Pay?
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    28 mins