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How much does it cost to hire a CPA

Posted in Accounting,Taxes on 02/19/2018   |  No Comments

by Michelle Duran

Asking  “How much does a CPA cost?”  is like asking, “How much does a home cost?” The answer is:  it depends.  For example, someone who has a simple tax return can pay $300 in preparation fees, while someone whose return is more complex and time consuming may have much higher fees. We can let you know exactly how much a tax return will cost once we know what forms you need to file. With less routine matters, such as IRS audits, it can be difficult to predict exactly how much our services will cost.

Regardless of the type of service you need, there are some things you can proactively do to reduce your costs

Build a Relationship:  By working with the same CPA each year, they become familiar with your situation and can quickly spot inconsistencies or changes which might affect your return.

Organization: Organize your documents. If you have a lot of contributions to deduct, providing a spreadsheet with the donations listed along with documentation can help lower your bill.

Consult your CPA before making decisions or assumptions: Always ask about changes in laws or if there is something that’s not quite clear, do not make assumptions. In 2009, a client decided to buy two cars in one year.  He purchased a Toyota hybrid and a Smart Car.  What he didn’t know was that Toyota hybrid no longer qualified for the tax credit. Had he consulted a CPA, the CPA could have provided a list of cars that still qualified for that tax credit.

Tell all: Not giving complete information to your CPA only hurts you, and it can end up costing more if the CPA does not have complete information, because work has to be re-done.  Sometimes it can be embarrassing to share some information, but your information is private and helps your CPA determine the best way to claim that expense or report those earnings. In some cases, it is better to have a lawyer handle your tax matters. Lawyer-client privilege is somewhat stronger than CPA-client privilege, in the event there should be tax litigation. In addition to CPAs, Lamar & Associates provides legal representation.

Legal and accounting fees should be viewed as investments: (1) we will help you minimize your taxes while staying out of trouble; (2) we will help you audit-proof your tax return, just in case; (3) we will help you to decide on the optimal structure for your business; (4) i if you are in business with other people, we will help you create rules for operating your business the will minimize the chances of disputes I the future.

Sale of Investment or Rental Real Estate

Posted in Uncategorized on 02/29/2016   |  Comments Off on Sale of Investment or Rental Real Estate
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Sale of Real Estate

The sale of rental property may trigger capital gains tax or may generate a loss.

Your taxable gain or loss is determined by subtracting the property’s adjusted basis on the date of sale from the net sales price. The net sales price is your sales price less commissions, closing costs, and fix-up expenses.

Your adjusted basis is essentially the amount you paid for the property when you bought it, plus the cost of capital improvements you made to the property, less depreciation you were entitled to deduct during the time you were renting out the property.

The situation can be more complicated if you inherited the property or received it as a gift, but for now we will assume you purchased the property.

One mistake people often make is to think of their gain as the net sales proceeds that go into their bank account after loan balances are paid off. But the loan payoff is not relevant to the amount of gain.

Here’s an example:

Edward and Laura both buy investment property for $100,000.

Laura pays cash for hers, and Edward makes a $20,000 cash down payment and takes out a loan in the amount of $80,000.

They each sell their property for $150,000 and have commissions and closing costs of $10,000. Laura puts $140,000 into her bank account. After paying off the loan, Edward has $60,000 to put into his bank account. But Laura and Edward both have the same capital gain of $40,000 ($50,000 gain less $10,000 closing costs).

Calculating Your Adjusted Basis

Basis is good. The higher your basis, the less your capital gains tax will be.You can increase your basis for capital improvements (for example, adding onto a building, installing a driveway, or paying assessments for sidewalk improvements).

For example, assume Laura had a water well drilling on her property, at a cost of $30,000. Laura’s basis in the property is now $130,000. If she sells it for $150,000, her gain will be $10,000 ($150,000 – $130,000 basis – $10,000 closing costs)

On the other hand, you have to decrease your basis for tax deductions you take over the years. Usually the biggest decrease is depreciation. The Tax Code allows you to take a depreciation deduction each year. The longer you own the property, the more the depreciation accumulates. If you owned the property for at least 27.5 years, your cost basis would be reduced all the way to zero, and 100% of your net sales price would be a gain.

To go back to the example of Laura, suppose that instead of investment property, she paid $100,000 for a rental property. At the time she sold the property, she had taken depreciation deductions of $8727. Her adjusted basis is $91,273, which means her gain is $48,727 instead of $40,000.

You also have to decrease the basis for sales of partial interests in the property. For example, if Laura had sold her water rights for $10,000 instead of drilling a well, her adjusted basis will be $100,000 purchase price, less $10,000 received for the water rights, and her gain on the sale of the property for $150,000 will be $50,000 instead of $40,000.

Depreciation and Writing Off the Purchase of a Business Vehicle Under Section 179

Posted in Uncategorized on 12/09/2015   |  Comments Off on Depreciation and Writing Off the Purchase of a Business Vehicle Under Section 179

land roverThe purchase of a business vehicle is a capital expenditure rather than an expense. This means that it would normally be recorded on your financial statements as a fixed asset. Instead of deducting the whole cost of the purchase in the year of purchase, you would deduct a portion of the cost of the vehicle from your income each year over the useful life of the vehicle. The accounting term for this process is “depreciation.”

The common-sense meaning of “useful life” is the amount of time an asset will serve you. For example, if you expect to drive a car for 5 years, its useful life would be five years. If you were using straight-line depreciation, you would deduct 1/5 of the cost of the car each year for 5 years.

Congress has assigned “class lives” to various classes of assets for purposes of calculating the tax deduction for depreciation. For passenger cars, the class life is 3 years; for light general purpose trucks 4 years, and for heavy general purpose trucks 6 years.

In addition to having periods for depreciation that do not necessarily match the actual useful life, you can use accelerated depreciation for tax purposes, that is to say you deduct more of the cost in the early years and less later on. This is advantageous from a tax-saving point of view.

An even better advantage would be to write off the whole cost of the purchase in year one. This is what section 179 allows you to do, with some limitations.

You cannot use the section 179 deduction for a passenger car or light general purpose truck. Instead, these vehicles must be depreciated over their class lives.

For example, if your business pays $30,000 for a passenger car to be used by the business, the depreciation schedule would look like this:

Year 1 $10,000
Year 2 $ 13,335
Year 3 $ 4,443
Year 4 $ 2,223

Certain vehicles get better tax treatment. The section 179 deduction up to $25,000 can be taken for heavy general purpose trucks.

The definition of heavy general purpose truck used to include SUV’s in previous years, but it no longer does. The vehicles that qualify include the following:

— Heavy vehicles (gross vehicle weight rating above 6000 pounds) with a cargo area at least six feet in interior length not easily accessible from the passenger area. This definition is meant to exclude SUV’s. It also excludes some extended cab, short-bed pickups, but would apply to a standard or long-bed pickup.

— Vehicles that can seat more than eight passengers behind the driver’s seat (for example, airport shuttle vans).

— Vehicles with a fully-enclosed driver’s compartment / cargo area; no seating behind the driver’s seat; and no body section protruding more than 30 inches ahead of the leading edge of the windshield (classic cargo van)

Here’s how the write-off for a $30,000 heavy pickup truck would look:

Year 1: $25,000.00
Year 2: $ 2,223.00
Year 3: $ 740.50
Year 4: $ 370.50

Note that special-purpose vehicles will fall into different categories. For example, tractors and other special purpose farm vehicles can be fully written off up to the annual limits for section 179. Likewise dump trucks, flatbed trucks, and forklifts.