Income Tax Information — Never Ignore A Letter From The IRS
April 25, 2010 by Taxcut Editor
Filed under Personal and Business Taxes
If you owe a significant amount of money to the IRS, there are plenty of places to get income tax help from certified tax advisors. Section 7122 of the Internal Revenue Code stipulates that the IRS may accept a smaller amount as full payment of a tax debt if you don’t have enough money to pay what you owe, and you are not realistically able to make payment in the future. In such situations, the tax law encourages you to make a compromise offer to the IRS.
Can you make a deal with the IRS? Yes, you can—the law encourages you to try. Here are some things to keep in mind if you need income tax help to settle a debt with the IRS:
1. Many delinquent taxpayers are able to negotiate a very favorable deal. You might be able to pay off your back taxes, including interest and penalties, for less than fifteen cents on every dollar you owe. That means a $50,000 tax liability could be written off for no more than $7,500.
2. The IRS won’t make such a favorable deal if they think they can get you to pay more by other means. The IRS uses a formula based on your net worth to determine how easily they’ll let you off the hook. How they arrive at a decision is beyond the scope of this brief article, so ask a tax advisor if you feel it’s in your best interest to make a compromise offer to the IRS.
3. If you default on the terms of a tax settlement, the IRS has a legal right to terminate the agreement and seek payment of the entire amount originally owed in back taxes, interest, and penalties. When you make a deal with the IRS, follow through on the agreement. No amount of income tax help from the best advisor in the country will bail you out if you fail to keep your end of the deal.
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Madison White Useful And Easy Guide To Follow When Buying 1031 Exchange Explained
March 28, 2010 by Taxcut Editor
Filed under Personal and Business Taxes
A 1031 Exchange is an Internal Revenue Condition which permits for a tax-deferred exchange with like properties. These exchanges need to occur inside a chosen amount of time to qualify for the tax benefit. These exchanges are most often related to real estate but can be done with different real property. There are specific regulations for individuals or businesses to follow so as receive a tax-deferral for the exchange of property avoiding high capital gain or alternative taxes.
1031 Exchange may be performed for either businesses or personal assets. It can even be done from a business to an individual or vice-versa. The exchange refers back to the properties of the asset as being exchanged plus not who is exchanging it.
The person or entity seeking to do a 1031 Exchange has forty-five days to complete the exchange. If like-property has not replaced the initial property, this is thought of as a sale followed by a buy and can be subject to taxes and not deferred in accord with the Internal Revenue Code Section 1031. This can be extraordinarily difficult when it comes to real estate which may have contingencies which extend escrow.
Items eligible in 1031 Exchanges are real estate, boats, vehicles and alternative tangible assets including farm animals. To qualify for the tax-deferral, it's vital [that the] person doing the exchange perceive what is like-kind. A house cannot be exchanged for a boat. Nor can a male cow be exchanged for a female cow as they have different definable economic properties. Whereas they must have the same properties, they are able to differ in quality or grade. Learn more about 1031 exchange explained here.
Real estate must have a particular classification to qualify for a 1031 Exchange. It must be for business or investment use. A property that is being exchanged from business use must be exchanged for either business use or investment use but can't be exchanged for person use or general sale. Thus a rental property can be exchanged for land to be developed.
Stocks, bonds, plus other securities aren't eligible for a 1031 Exchange. Inventory maintained in warehouses is simply not eligible either. Additionally, mortgages and other debts may not take any tax-deferred advantage in a 1031 Exchange plus are not eligible items.
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What Is Section 1031 Of The IRC Code?
December 17, 2009 by Taxcut Editor
Filed under Personal and Business Taxes
Section 1031 of the Internal Revenue Code allows a real estate investor or an owner of an investment property to exchange their property, thus deferring payment of state and federal capital tax gains. This is applicable if they purchase a “like-kind” property that adheres to the regulations and rules of the IRS 1031 exchange. This will allow the investor to use all of the proceeds from the sale to acquire a more valuable real estate holding, diversify into other properties, increase their cash flow, or consolidate into one property to reduce management tasks.
One major point to understand is what qualifies as a 1031 like kind property. The IRS states that in order to qualify, an investor shall incur no loss or gain on the exchange. A few examples of properties that can be exchanged include duplexes, single family residences, commercial properties, apartments and even raw land. For instance, you can exchange an apartment rental for a single family home rental, commercial building, etc.
Under a Section 1031 you also have the benefit of not having to complete the exchange simultaneously, as you have a total of 180 days to complete the entire transaction. But, keep in mind that you only have 45 days after closing on your old property in which to identify your potential replacement property under the 1031 rules.
It is also possible to sell a property under the 1031 exchange property code that has been used for both residential and business purposes. The major requirement is that a clear distinction must be present in the records of the taxpayer, with regard to the property that has been used for business versus the portion that is for personal use. One example of this that would be allowed under the 1031 exchange real estate rules is a bed and breakfast, and using the property as part personal residence and part business property. The same principal applies for the taxpayer who deducts a portion of his or her residence for a home office, as it is considered business usage.
Section 1031 can also be an effective strategy when selling a primary residence that contains excess land around a personal residence, and is used as an investment property. For example, take an owner who has a personal residence that is situated on 25 acres of land, yet it has been determined that the usual and customary acreage for similar properties in the vicinity are on an average only 3 acres in size. If the taxpayer has been holding the 22 excess acreage for investment, then under 1031 exchange rules the excess acres can be exchanged.
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What Is The Internal Revenue Code 1031 About?
December 16, 2009 by Taxcut Editor
Filed under Personal and Business Taxes
Naturally, every real estate investor wants to know how to make the Internal Revenue Code 1031 work best for them. They may think it is just for investors who have multi-million dollar properties, however that is incorrect. If an investor wants to sell their property, not have to manage real estate again and have their cake and eat it too, then a 1031 property exchange is a powerful tool.
The 1031 real estate exchange is so powerful because is available to all investors, regardless of the size of their holdings, as long as the property has been used for investment or business purposes. No matter whether you are interested in selling undeveloped land, a multi-family dwelling, a strip mall or hotel property, the 1031 is a great tool to use for deferring non-recaptured depreciation and capital gains.
Many investors who chase market appreciation realize that investments must make financial sense and produce enough of a cash flow to be justified. The Internal Revenue Code 1031 provides them with the ability to redirect their investment dollars without incurring capital gains taxes. By realigning their real estate holdings, they are doing themselves one of the biggest favors possible, especially in a tenuous marker. This allows for advantageous bargains that become available as they reinvent their strategies and utilize the benefits of a 1031 like kind exchange.
One of the biggest developments in the section 1031 exchange is the variety of replacement property choices that now exist. Originally, investors were limited to locating new property that would carry pretty much the same headaches as their old property; however, IRS procedure 2002-22 codified TIC exchange (tenant-in-common) and this was basically the birth of a new real estate industry.
Naturally, many real estate investors become fed up with having to deal with hands-on management, with all of the capital improvements necessary and the increasing operating costs, thus making the Internal Revenue Code 1031 a perfect solution to a great real estate exit plan. Older investors are looking for income streams, and now they can sell their properties under a 1031 exchange and obtain TIC interest. This turns the management aspect along with the profit and loss statement over to a group of experts and the investor receives a steady income stream. This also allows them to exchange their property and later turn it into their primary residence all without worrying about capital gains.
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Tax Deductions for Home Based Businesses
December 7, 2009 by Taxcut Editor
Filed under Personal and Business Taxes
Economic recession has forced many people who have been laid of to go in business for themselves. New home based small business owners ar not aware of all the tax deductions that apply to them. Your business can be located in an apartment, condo, mobile home or a boat and still qualify for the home based tax deductions.
There are certain requirements that a home based business should meet.
- You should dedicate a part of the home exclusively as a place of business.
- The part of the home has to be identifiable.
- You should be using your home for business regularly.
- You should be meeting your clients in that part of the house.
- You can have other places of business but your house should be the primary place.
If you are following the above requirements, you qualify for a home business tax deduction. As with every deduction listed in the Internal Revenue Code, there is a deduction limitation for home based businesses.
Deductions can only be taken for the percentage of home used for business. For e.g. If you use one room in your 2 bedroom apartment, the business use of your home is 50%.
There are few misconceptions about home business deductions that are floating around. The most common one is:
- Non-deductible personal living expenses can be deducted as business expenses.
Not true, IRS says that non-deductible living expenses are never deductible. For e.g. Having a coffee in your room that you primarily use for business.
Rule of thumb is to save all your receipts for at least 5 years. Home based businesses have a higher probability of being selected for an audit and you should always be able to substantiate your claims. Please consult with your tax preparer for more information.
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