1. Tax Time Presented by: Ronnie Withaeger

3. The Agenda What we will learn: Types of Tax Returns Understanding your Tax Return Tax Deadlines Tax Planning Understanding your Tax Return Common missed deductions Tax Credits Real Estate Tax Strategies Question and Answer

4. Types of Tax Returns Tax Entities: Individual – Files Form 1040 LLC, LP or GP – Files Form 1065 – Pass-through LLC or Inc – Files Form 1120S – Pass-through LLC or Inc – Files Form 1120 Notice LLC is on three separate lines – You make an election on how you want it taxed. Disregarded Entity – Files with the entity it is owned by.

6. Understanding your Tax Return Why is this important? You are going to sign the return. Knowledge is power. Accountants are not perfect. You will save money.

8. 2016 Deadlines Take a picture of this slide! Form 1040 – April 15 th Form 1065 – March 15 th Form 1120S – March 15 th Form 1120 – April 15 th and “It Depends” Form 1041 – April 15 th State Returns – Typically same as the federal

9. Tax Planning Regular Consultation is key! Annual Year-End Tax Planning. -Reviewing Bookkeeping -Review retirement contributions - QRP -Fixed asset purchases -Tax Projections -Estimated Tax Payments – Avoiding Penalties -Finding opportunity (1031 Exchange, Installment) -De Minimus Safe Harbor Election -Appropriate Management Fees -Reviewing Salary -Avoiding Dealer Status

10. Tax Return Overview Individual Return: Income Adjustments to Income -Health Savings Accounts -Moving Expenses -Retirement Contributions -Student Loan Interest Other Items to be aware of: -Line 57 – Self Employment Tax -Line 61 – Healthcare Tax -Line 64-65 – Tax Payments made

11. Tax Return Overview Schedule A: Itemized Deductions Medical and Dental Expenses – See Line 3 State and Local Taxes – Calculated or Actual Real Estate Taxes – See Line 6 Personal Property Taxes – See Line 7 Home Mortgage Interest – See Line 10 Points – See Line 12 Mortgage Insurance – See Line 13 Investment Interest Expense – See Line 14 Charitable Contributions – See Line 16 & 17 Casualty or Theft Loss – See Line 20 Misc. Deductions – Unreimbursed Business Expenses, Tax Prep Fees, Safe Deposit box, Advisor Fees. See Line 21-26

12. Tax Return Overview Schedule C: Sole Proprietorship Income & Expenses Line 30 – Home Office Deduction – (Audit Red Flag) Part IV – Vehicle Information Schedule E: Rental Real Estate Line 9 – Insurance Line 10 – Legal & Professional Line 12 & 16 – Interest and Taxes Line 14 – Repairs Line 18 – Depreciation Line 22 – Deductible Real Estate loss after limitation (***)

13. Tax Return Overview Schedule E: Continued Pass-through Entities Summary Line 28 – Will list your Partnership and S-Corps Line 28 – Will also distinguish between Passive and Active Status Schedule K-1 Part I & II – We are asked to provide a lot of information Part III – Summarizes business activity in sections See Part II Section L – Discuss Capital Account

15. Tax Credits Child Tax Credit – See 1040 Line 52 Foreign Tax Credit – See 1040 Line 48 Residential Energy Credits – See 1040 Line 53 Electric Vehicle Tax Credit - $2,500- $7,500 Adoption Credits Education Credits – American Opportunity Dependent Care Credit Premium Tax Credit - ObamaCare

16. Real Estate Investors Tax Strategies to consider: How active are you? -Passive Investor? -Dealer? -Real Estate Professional? Tax Deferral Strategies! -1031 Exchanges -Installment Sales

17. Real Estate Tax Returns Here is how they normally look: All losses are deductible -Real Estate Professional Losses limited to $25,000 -Modified AGI needs to be less than $100,000 No losses are deductible -Modified AGI is greater than $150,000

18. Deduct All Losses Must be a Real Estate Professional: More than 50% of time spent on business activities is spent on real estate activities; The total amount of time spent is at least 750 hours per year; and You materially participate in the rental activities If married, only one spouse needs to qualify DO NOT FORGET TO MAKE A 469(H) AGGREGATION ELECTION ON 1040!

19. What Counts - Time Showing property for rent Inspecting Properties Hiring/Dealing with Management Company Review & Screen Tenant Applications/Leases Doing Improvements and Repairs Evicting Tenants Writing Ads/Websites Attending Seminars/Travel Purchasing Supplies/Materials Responding to Tenant Complaints/Inquiries

20. Dealer Status A dealer is someone who buys real estate with the intent to re-sell Facts and circumstances test, Intent. -Amount of sales during year -Holding period -Profits received -Time and effort spent on sales -Extent of improvements -Attempt to rent or sell -Listing with Real Estate Agent -Time spent on real estate as compared with other jobs

21. Dealer Status Why is it a concern? No Like Kind Exchanges No Installment Sales Self Employment Tax Issues No depreciation deductions permitted No Long-Term Capital Gains How can you avoid being tagged as a dealer Flip properties through a C or S Corporation.

22. Installment Sales Tax Deferral Strategy. Reported on Form 6252. Payments received come in 3 Forms: -Interest Income -Return of your Basis -Gain on your sale. Payments will be received in current year and future years.

23. 1031 Exchanges Tax Deferral Strategy. Identify a replacement property within 45 Days. Close on identified property within 180 Days. Use a Qualified Intermediary to handle transaction. What does “Like-Kind” mean? -Real Estate – Rentals, Offices, Stores, Land, Plants and Warehouses. -Personal Property – Machines, Auto and Furniture. -Can do a business for a business. -Can’t do stocks, securities or partnership interest.

24. “Like-Kind” What does “Like-Kind” mean? -Real Estate – Rentals, Offices, Stores, Land, Plants and Warehouses. -Personal Property – Machines, Auto and Furniture. -Can do a business for a business. -Can’t do stocks, securities or partnership interest.

25. 1031 is Situational When to do a 1031: -When your intention is to buy more property. -Appreciation causes a large tax liability. -Retirement strategy – Income producing property. -You never want to pay tax on Real Estate by eventually using Section 1014 step up in basis. When not to do a 1031: -When you have loss carryovers. -Property is in a loss situation. -Future Income considerations.

26. Example - Appreciation You own a property with $100,000 cost basis, $50,000 net book value and has a current fair market value of $200,000. How much is your Capital Gain? How much tax would you pay at 20%? You own a property with $100,000 cost basis, $50,000 net book value, debt of $40,000 and has a current fair market value. How much is your Capital Gain? How much tax would you pay at 20%?

27. Example- Appreciation You own a property with $100,000 cost basis, $50,000 net book value, debt of $60,000 and has a current fair market value of $200,000. Replacement property identified, has a fair market value of $300,000 and debt of $100,000. How much cash would the other party want to even this out? What is the new tax basis? The concept of “Boot” includes mortgage amounts and cash paid.

29. Example - Retirement Mrs. “48” year old Real Estate investor wants to retire in the next year. She has a piece of CA raw land that she paid $200,000 for in 1990. The current FMV is 2,000,000. If she sells she would pay federal and state taxes of 30% ($540,000). If she makes 5% on her remaining $1,460,000, she would earn $73,000 per year. She has a great tax planner named Ronnie Withaeger who asks her to consider a 1031 exchange for an income producing property where she could cash flow 5% on the full $2,000,000. The well planned strategy now yields retirement income of $100,000 per year.

30. Miscellaneous 1031 Facts You can do a reverse 1031 exchange. Specifics in Revenue Proc. 2000-37. Related party 1031 Exchanges can happen. Exchanged property need to be held for 2 years. Can’t be for the purposes of tax avoidance. It can be not taxable to you and taxable to the other party. Form 8824 is the tax form where the deferred gain calculations happen.

31. Thank You! Ronnie Withaeger Add me on LinkedIn!