We often find that there is a lot of confusion surrounding Real Estate Professionals and taxes. This confusion is mostly fueled by many years of bad advice from unqualified tax preparers. Here is a list of the 4 most common ways we see Real Estate Professionals fall victim to IRS problems.
1. Not paying estimated taxes.
Being in the Real Estate profession can be tough! There are good times, slow times, and sometimes you can go a month or two without having a deal close. When you finally do get some money in you have bills that have stacked up. This makes putting money aside for your quarterly estimated taxes difficult, especially when you know that they aren’t due right now.
We always advise our real estate professional clients to pay their estimated taxes to the IRS and state when you get paid so you will always have the money available. Just because the tax authorities require at least quarterly payments, does not mean you cannot pay the taxes on a more frequent schedule. Paying the tax when you can will help you stay out of trouble with the IRS, because you never know if you’ll have the money when the payment is due.
2. Failing to File Tax Returns.
Sometimes Real Estate Pros will get to April and have not paid their quarterly estimated taxes throughout the year. They then decide not to file their tax return because they don’t believe they will be able to afford to pay the taxes due.
The IRS has both failure to file and failure to pay penalties. It is always more advantageous to at least file your tax return even if you don’t think you can pay what will be due, as it will cut down on the penalties that may be applied to your balance. The IRS also has payment plans available that can help spread your payments over a longer period of time.
3. Not having a system to document business expenses.
The scariest thing that can happen to most Real Estate Pros is to open their mailbox and find a letter from the IRS informing them of an audit! It is critical to have systems to document everything you do so when you do get that letter you have nothing to worry about! Some of the biggest mistakes we see in this area are:
- Not saving receipts for business expenses
- Lack of mileage logs
- Not allocating cellphone usage
- Not taking the home office deduction
4. Commingling Funds
You’re running a business and you have to act like it! That means do not mix your personal and business expenses. The easiest thing to do is to create a separate bank account for business purposes. Additionally, you may want to open a credit card specific to the business as well. Keeping things separate will make your life a lot easier if you ever get audited!
We specialize in getting Real Estate Professionals back on track with the IRS!
If you ever have a problem with the IRS – don’t try to take it on alone! You wouldn’t go to court without an Attorney, right? Don’t try to take on the IRS without representation. Lawler and Witkowski CPA’s specialize in Tax Problem Resolution. If you have a tax problem submit your information below and we’ll give you a call to schedule your 100% free no obligation case consultation. You can also call us directly as (716) 630-1650.
You have absolutely nothing to lose except the stress and anxiety that comes with having a tax problem!