The Benefit of Tax Rental Property
Most cities and states tax rental property because it is a reliable tax base. While many landlords will tell you that renting property is not always the cash cow people think it is, there is great incentive to let your property for hire. With rental property, you can deduct related expenses you incur while managing the property. However, you have to keep good books and details about how you spent the money. Advertising is a major deduction because you have to find tenants for your unoccupied suites. One thing to note about rental property is the property is likely to increase in value over time. This extra amount means that when you decide to sell the property you would attract IRS capital gains tax on the final value less the original cost for the property.
Even if you know about taxes, there is always something new to learn. Read the following article to see what you may have missed.
Audit Triggers - How Does the IRS Decide Who To Audit?
With the tax clock ticking down lots of people are finishing up their tax returns. A common question that comes up during this joyous time of year is, “How can I avoid an audit?” Fortunately for most taxpayers the question is far more common than an actual audit. Only around 1% of all taxpayers actually end up facing an audit.
Comforting as that fact is, it is in no way instructive. Knowing what is more likely to trigger an audit can go a long way to avoiding one. Avoiding these triggers will not guarantee that an audit will not occur but it will reduce the chances of one. While all of the reasons that the IRS launches an audit aren’t known, crunching the statistics of past audits does demonstrate some clear triggers.
High deductions - Any deduction that is proportionally high to the taxpayer’s income usually constitutes a red flag. Determining what’s high is the trick here. The IRS publishes an annual book, “Statistics of Income.” Although the book gives ranges for typical incomes some logic needs to be applied. If a taxpayer is at the lower end of a particular income range but claims the upper limits of deductions associated with that range then that deduction may still trigger an audit review even though the deduction is technically within the accepted limit.
High Income - Although a higher income should be considered an advantage under any other circumstance, considered from the perspective of prospective audits it is most certainly a disadvantage. And the chances of an audit jump up significantly with each income level. Past audits tell us that the chances of an audit for taxpayers making less than $100,000 is 0.93%. For incomes over $100,000 the chances jump to 1.77%, over $200,000 brings the odds up to 2.87% and over $1 million in income brings the chances of an audit to a whopping 9.37%!
Cash Income - Any profession that deals with a lot of cash, such as waiting tables, tends to spark the curiosity of IRS audit agents. One of the first things they compare in cases such as this is bank deposits vs. claimed income.
Self-Employment - Because self employed taxpayers are constantly keeping an eye on their bottom line they tend to be aggressive at writing off expenses. While there are many legitimate reasons for doing so the IRS likes to verify these deductions.
While these are some of circumstances that may trigger an audit they do not necessarily guarantee one nor will avoiding them remove all possibility of one. The best defense against an audit is to always expect one. Taxpayers should make sure that their deductions are legitimate and reasonable. They should also keep well ordered records and receipts.
However never having to face an audit is certainly the best circumstance. Keeping these triggers in mind can help taxpayers reduce the risks of that happening.
This article is published on behalf of IRS Problems Resolved. Check out IRSProblemsResolved.com if you are facing tax issues such as past due taxes or wage levies.
Rental property is subject to capital gains tax when it is sold. You need to keep good records of your property to make your life easier when it comes to reporting it on your income tax return.
Originally posted 2009-02-16 10:52:56. Republished by Old Post Promoter
