The IRS issued a notice on January 18, 2019 about specific conditions under which your rental real estate enterprise may be treated as a trade or business.
This safe harbor is available to taxpayers who want to claim
the section 199A deduction with respect to a rental real estate enterprise. If you
can meet the safe harbor requirements, your real estate enterprise will be
treated as a trade or business.
To qualify for this safe harbor your enterprise must satisfy
several requirements, as follows.
Qualifiers for the IRC Section 199A Deduction
1. You must maintain separate books and records showing income and expenses for each rental real estate enterprise.
2. You (or your staff or contractors) must perform at least 250 hours of rental services during the tax year for each rental real estate enterprise. You may not combine commercial and residential rentals within the same real estate enterprise. Rental services that qualify include:
- Advertising to rent or lease the real estate
- Verifying information on the tenant applications
- Negotiating and executing leases
- Maintenance and repair of the property
- Collecting rent
- Daily operation, maintenance and repair of the property, including:
- Purchase of materials for repairs
- Supervision of employees and independent contractors
As the property owner, you may perform these services yourself or have your employees, agents or independent contractors do so.
3. You must maintain contemporaneous records to document these hours of services, including time reports, logs or a similar description of the services performed, the dates on which they took place and who performed them. This means you must track everything, including your personal time and the time of those you employ. Maintaining a log book and invoice file scrupulously will satisfy these requirements. Your records should be available for inspection at the request of the IRS. The records requirement does not apply to taxable years beginning prior to January 1, 2019.
See also: Changes to Arizona Department of Revenue’s Electronic Filing and Tax Payment are In Effect as of January 1, 2019
If you cannot satisfy these requirements, your rental real estate enterprise may still be treated as a trade or business for purposes of section 199A if the enterprise otherwise meets the definition of trade or business in § 1.199A-1(b)(14).
The tax experts at Sean Core CPA can help you determine if your enterprise meets the requirements for the safe harbor IRC section 199A deduction. Call us today at 480 626-5043 or contact us online.
If you filed for an extension for your corporate business tax return, the deadline of October 15th, 2017 is fast approaching. Typically, these returns and individual tax returns are due on the 15th of the fourth month following the tax year end, December 31st 2016 for individuals and most businesses. A six-month extension gave you until October 15th 2017. Schedule C sole proprietorships and single member LLC’s also have the luxury of waiting until October, with a six-month extension.
New Deadlines for Partnerships and LLCs
Beginning with the 2016 tax year filing in 2017, Partnerships and S-Corps filed on a form 1065 and form 1120s respectively, are required to file returns by March 15th. This provides the necessary time to send Schedule K-1 to business owners for filing on their personal returns.
If you were part of a partnership filing Form 1065, your deadline is September 15th if you filed an extension by March 15th. In case you missed this deadline, or if you have any questions about these or any other tax deadlines, contact Sean Core CPA PLLC, for tax and business services. We provide business tax services related to Individuals, S Corps, C Corps, LLCs and Partnerships, and filing of all required schedules including K1’s.
Sean Core CPA for a Wide Range of Tax and Business Services
Our small business focused accounting firm provides tax preparation services including payroll tax returns for federal and state withholding (940, 941, 943, and 944), all State Unemployment returns, sales tax, and property tax returns. Sean Core CPA provides personal attention to small business, with a wide range of business planning and financial services such as monthly bookkeeping with compilation of financial statements, and business tax services.
Sean Core CPA has been assisting small business owners in and around Mesa, AZ including businesses in Chandler, Scottsdale, Tempe and Phoenix with accurate and timely tax and business services that you can trust.
Never miss a tax deadline again! Contact Sean Core, CPA today to maximize your return regardless of your business structure. We have the knowledge and experience to reduce your tax debt and maximize your return with timely tax filings.
Owning a small business, being the boss, making all the decisions are dreams come true for any Phoenix entrepreneur. Many people day dream about opening a business. Others make those dreams come true by following the path to business ownership.
Most businesses are started because of the driving passion and ambition of the owner. Before letting the passion take over, there are three major components of business ownership that every potential entrepreneur needs to consider before hanging an open sign on the door.
Researching and developing a business plan, determining finances and taxes, and looking at the legal side of owning a business are vital to long-term success to any size or type of business.
1. Researching and Developing a Business Plan
The business plan is important to setting many of the procedures, techniques, and operations of a business. All business plans should include the following:
- Market research to determine the need for the product, pricing structures, and delivery methods
- Realizing the Strengths, Weaknesses, Opportunities, and Risks (called a SWOT analysis)
- A marketing plan for how are the products/services are going to be promoted
- A growth plan showing what the next 3, 5, or 10 years look like
- Personnel needs at startup and as growth occurs
- Specifics of an office or brick and mortar store front that includes size, location, rents and furnishing, etc.
- Projected first year sales, expenses, and profit margins?
- Financing, investments, taxes, and other money matters
- Legal factors such as naming, type of business (corporation, Limited Liability Corporation, Partnership), and licensing needed
2. Financing and Taxes
After researching and developing a business plan, the next step is to detail the financing and taxes section. The following list is a starting point for determining all the money details.
- Detail all financing matters such as investors, loans, and credit cards
- Projection of cash flow details such as how customers will be billed and what billing terms will be given to customers such as net due in 15 or 30 days
- Projected monthly profits
- Projected monthly expenses
- Tax payment schedules
- Payroll particulars such as how often to pay employees, benefits offered, and who processes payroll
- Accounting practices for the office including computer software to help manage and monitor cash in and cash out
- Weekly, Monthly and/or Yearly Tax preparation and filings
3. Legal, Business Forms and Insurance
There are many decisions business owners have to make from the moment he or she decides to go into business for themselves until the day the business is sold, closed, or as it grows. The list below contains the legal aspects of opening a business.
- Selecting a business name that is unique and legal
- Determining business structure such as sole proprietorship, Limited Liability Company, Cooperative, Corporation, Partnership, or S Corporation. Each type has its benefits and downfalls. It helps to consult an attorney to determine the best structure for a particular type of business.
- What types of insurance is needed for the business such as renter’s insurance, employee insurance, health or life insurance, consumer protection insurance, etc.
- How to file patents or copyrights
- Obtaining any all of the necessary licensing
Keep the Passion Alive
Many business owners tend to get put off by some of these details (especially the accounting and tax tasks) and would rather ignore them than to address them. Most of the details listed above are one time decisions while others have to be continually updated like the business plan.
Laying the ground work before starting the business is always the best way to approach these items. There will be time for the business owner to pursue their passions of making or providing the products and services that will always remain the foundation of any business.
We wish you much success, and if you are looking for tax advice or business accounting help from an experienced CPA in Arizona, please reach out to our Mesa office.