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Tax Smart Real Estate Investors Podcast
363. Tax Filing Mistakes That Cost Real Estate Investors Thousands
00:33:54
In this episode of the Tax Smart REI Podcast, Tho…
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You're now listening to the Tax Smart REI Podcast, the number one tax podcast.
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For real estate investors.
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Your source for.
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All things real estate accounting and tax. Here we reveal our secrets that can save you thousands in taxes, streamline your accounting process, and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors, and current clients on what strategies they use to grow their business and how they steer clear of Uncle Sam.
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Thanks for tuning into this week's episode of the Tax Smart REI Podcast. Today we'll be talking about tax filing mistakes. With tax season rapidly approaching, tax filings on everybody's mind. But every year we see hundreds and hundreds of mistakes. I think over 85% or 80% of the returns that we do review have some type of significant errors or missed opportunities for tax savings or just other little errors that we do catch. So we'll be going through a lot of those here today. This can be relevant whether you're an active investor, a passive investor, you're in short term rentals, or you're just a high income earner in general, this is going to be for you. So we'll be diving to all these mistakes in just one minute.
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Newsletter worth reading, and that's because we.
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Hadn'T created ours yet. The REI Daily is a newsletter you actually want to read whether you own one property or a hundred. We created this for you. Each issue delivers crucial tax saving strategies, legislative updates, as well as real estate market insights. Everything you need to stay sharp and.
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Get the real estate and tax news that actually matters straight to your inbox. Subscribe to the RI Daily newsletter today@therealestatecpa.com subscribe. That's it for now and right back into today's episode.
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B
All right, and we're back. And you know, Nate, I know you see a lot of mistakes and stuff you see on your end. So really interesting to get your take on some of these. First and foremost, a lot of short term rental investors tuning in to this. Obviously guys, we'll go beyond short term rentals today. So if you're not in short term rentals, we'll be getting the plenty of mistakes that we see outside of that. So kind of the first one we see is reporting short term rentals on schedule.
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C
C. Yeah, Tom, that's a big one. One thing I want to, I want to say too is that like this applies, hey, if you're a short term rental investor, whether you're active, passive, high come earner, Like a lot of these mistakes, I want to talk about this one specifically. Right? We can fix this. We can amend tax trends. Not everything we talk about today is actually fixable. Some things might be permanent and permanent decisions always have consequences. Right? Like that's just a life lesson that we all know. Well, we all know all the listeners now here too is that permanent decisions are not like that can be an issue at times. But going back to short term rentals on schedule C, right? So in my career, when I first started out, my first year as a tax preparer, I saw an Airbnb on a Schedule C. I, I thought, huh, that kind of feels right, I guess until you come across the wonderful blog Hall CPA that talks about short term rentals and actually why that doesn't make sense. Interestingly enough, the technical partner of my very first firm said, hey, Airbnb belongs on schedule E, which agreed with what we saying. And it's like, why does that matter? Right? Why can that be costly? That's because of self employment tax. So our goal is always to have cash flow and income. Right. Hopefully depreciation helps us with that. But if we are actually having a really great Airbnb and I've seen a lot of our clients create, create that, that means now you are creating an additional 15 tax upon yourself with that. And Tom, I don't know about you, but I don't know if I want to pay an extra 15 to the government. 15.3% to the government if I don't have to. Right, right.
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B
100%. 100%. And we've seen this before, people come in, they have their prior tax preparer filing their short term rentals on schedule C. And to your point, you know, yes, in the first year you might be creating substantial deductions via bonus depreciation on your short term rental, but there are certainly cases where in subsequent years you could be generating quite a significant profit. And that's why a lot of people do get into short term rentals outside of just the tax benefits is the cash flow that Airbnb can produce or short term rentals in general can produce. And you might be subject to self employment tax when you do file on schedule C. But here's why it's typically wrong. And we've had all the regulations, you could find it on the realestatecpa.com and other articles that we've written that if you're merely renting the space, meaning someone's just renting out your Airbnb for the weekend or the week Whatever the case may be, and there's no substantial services that are being provided, that it goes on Schedule E. And there it's in the regulations. There's plenty of IRS publications, there's plenty of authoritative guidance that suggests that that's how it should work. And again, substantial services are going to be hotel like services like daily cleaning, daily meals, concierge vouchers, you know, just things that go above and bey your typical rental. So unless you're doing that, unless you're providing substantial services, which is my experience, like 95% or more of short term rental investors are not, then that should go on schedule E. And you usually see it put on schedule c by general CPAs who just have a surface level understanding of the nuances of dealing with short term rentals. So that's just something you want to avoid putting on schedule C unless you should go there if you're providing substantial services.
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C
And Tom, I want to talk real quick about substantial services because we get that question a lot and some people will say, hey, I am available 247 for my Airbnb. It's actually talked about in a tax court case a little while back where someone did something similar with proven participation. But basically I basically go, I'm on call 247 to fix anything at the property, right? That's not substantial services, right? It's like what Tom said is that like it's got to be hotel. Like a lot of times I see beach properties actually legitimately provide substantial services, right? The providing of a, you know, a boat or something of that nature. However, it also has to be a large part of the rent associated with it too, right? It's not just a one factor test, like, oh, do you do a lot of stuff, right? Do you think about what the hotel does? Right. You probably can hop on a shuttle from the airport to the hotel, right? A lot of times they offer that kind of a service. Is your Airbnb offering that?
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B
Right?
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C
Are you providing actual meals? Is there a restaurant? Is there a cook being provided? Are you actually paying for that? And it's a part of your rent, right? Is that considered substantial services? You can offer one off services and still not be considered, quote unquote substantial, right? Like people have asked a lot of times, oh, hey, I'm offering a tour guide, right? A tour guide. I'm not going to do, I've been offering a tour guide. That's not going to get you into substantial services category. But if you have that, plus the Uber ride from the airport to the property or something, like you start attacking on a bunch of different stuff now, it becomes a big part of your rent. It's a lot, there's a lot of involvement. Now you put yourself in substantial services category. Here's what I say too. If it's all going to make you money, if it's all going to be profitable for you and it provides a great experience for your guests, who cares if you wind up getting tossed in a self employment bucket, right? There's other ways that we can discuss and figure that around and plan around it. But if you get yourself into that and you're making money, great. You ran yourself into a great problem.
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Absolutely. Bottom line is it's a little bit more complex, which is why it's best to work with a tax advisor who can help you understand these nuances and make the best decisions for you on where these things should go. So just something to keep in mind is just a common mistake we do see is the misreporting of short term rentals. Next one is going to be up, is going to be more generally applicable and that is not filing an extension. Okay, so a few different things here, some misconceptions about that too, which we'll cover. But in general, as you kind of get more sophisticated, as you get into the real estate space, it's more common that you file an extension on your tax return and file beyond the April 15 deadline. Okay, I know I could speak for a fact. I've been extending my tax return for at least the last 10 years. Might be 11 years. I'd have to go back, I'd have to go back and check how long it's been, but it's been at least 10 years. And it's very common in this space. There's nothing wrong with filing extension. It does not flag the IRS for anything or anything like that. Now here's the thing. Extensions are not Automatic at the 1040, you have to actually file, file. You or your CPA have to file an extension on your behalf. And there's no oops, I forgot on the day after, you have to do it before the April 15 deadline.
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C
Right. And talking about 1040s, right. Have to do it before April 15. And if you created any new entities this year, any new LLCs, and maybe you have a spouse or a partner on those, you just created a partnership tax returner, what we call a multi member llc. So you need to talk to your CPA about making sure they file that extension. Those are the ones I see get missed the most, honestly where they don't Let like there was just miscommunication between the creation of this LLC and its filing requirement. And they we don't actually get the extension out the door because unaware that it existed that that was here. So that's why usually had hey, if you create an entity and you haven't or want to reach back out to your tax pro, recommend doing that to make sure you get that extension done. Because if you don't, regardless if you do it on the 16th, the 17th, 18th, whenever the following Monday is after that 15th, that can be $1,000 just right off the bat. So it's not the most expensive thing in the world, but it can get costly with number of partners and how long you wait to actually get that return done.
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B
Right, Right. Yeah. So if you're not gonna be filing by the April 15 deadline, which is very common again in the real estate space. And I think as people kind of get more and more experience in real estate, they start to realize this is just how it works. You want to make sure you've got that done on time. Either you've done it or your CPA has done it on your behalf. Next one up is going to be not making estimated payments with an extension. Okay. So an extension, when you file an extension of your tax return, whether it be a business tax return or your personal tax return, your 1040, it is an extension to file, not an extension to pay. Okay. So that means that if you do have a tax liability or you will likely owe taxes and your CPAs can help you estimate. If you do or you don't, you want to make an estimated tax payment by April 15th. So you minimize penalties and interest if you wait to file into the summer months.
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C
Right? Yeah. So it's a small thing, right? It's one of the small things, Tom. Like we talk a lot about the big things you can do. It's 1031, whether it's implementing STR with the cost seg that can really help with tax savings. This is one of the small things that can actually still save you little bits of money and help you over time. Right. Maybe you don't make any estimate tax payments. Well, the government basically says by doing that that, hey, you borrowed money from us for X number of time, so we would like the interest on that. It's generally, it's a lot lower interest than most banks are going to give out to you. So, hey, that's the game you can play. But if you make these estimated tax payments, that's $1,000 you could save. That's Interest you did not have to necessarily pay, right. That's a loan you not necessarily have to take out. Now, everyone has their own cost of capital, how they want to make that determination, essentially. But this is one of the easier ones that you can knock out and take care of, right? There's different ways. Hey, if you own an S corporation, right, Maybe we can run that through W2 withholding at the end of the year. Right? Maybe you don't have to actually make the estimated tax payments. Maybe we just do it right then there at the end of the year. Not a bad play. Could be a good option. But it's one of those easy ones that I think people don't think about enough and think, oh, I'm just not going to do it when like, hey, on your tax turn, more times than not, TaxPro, I know we do it says, hey, this is estimated tax payments you need to make to ensure that you're not going to get messed. Like you're going to not pay penalties to the IRS when you file your tax term.
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B
Absolutely, absolutely. Super important to be aware of that and, you know, speak to your cpa, speak to your advisor on how you want to play that game. But just something to be aware of. All right, next one up. We have not claiming the full deductions that you're entitled to. And there's a lot of reasons for this, but, you know, I can't tell you how many times I've seen a return that's missing property taxes, that's missing insurance. Now, most people are going to have these types of expenses, and more often than not, it's a reflection of poor record keeping or bookkeeping where things just kind of get lost in translation. That proverbial shoebox where all your receipts are don't really ever make it fully over to your cpa. But it most certainly does happen for other reasons, too. Sometimes CPAs can be a little too conservative. Oh, you know, we're going to not take all the deductions because they're scared of audit risk or whatever the case may be.
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C
Yeah, Tom, I mean, I cannot tell you the number of times I've had. I've had a client tell me, I've got an Excel spreadsheet. It's amazing. You can't miss it, right? You can't miss it. It's incredible. I don't miss any expenses, right? And then lo and behold, every time we get to the end of the tax turn, guess what happens? They always go back and say, I can find some more expenses. Let me be back real quick. And it's because they know they don't have the best tracking system. Sure, maybe they can give their best faith estimate, but this is when bookkeeping is really important. Having QuickBooks, having a bookkeeper, having something or some software that's helping you do this, you know, that isn't something that is just an Excel spreadsheet dropping down your credit card statements and all of that, right?
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Yeah.
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And also, don't use your personal credit card statements. Please don't use your personal credit card. At least have a separate credit card. That makes it clear and easy for you and the irs, because guess what? They might review your transactions. If you can't figure out your transactions, they ain't going to figure out your transactions either.
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Right.
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As always. Like Tom was saying before, don't under report your deductions. Have some kind of system in place that isn't. Excel doesn't require you to manually input things.
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B
Right? Absolutely. So, yeah, you definitely want to make sure you have your records in good order. So you are claiming the full deductions you're entitled to because that's easy tax savings that you can easily pick up. So now this next one is actually a pretty big one and it's usually a result of erroneous tax planning or poor tax planning. And I have a little bit of a case study right here that I could share on this one, but it's erroneously electing out of bonus depreciation, which is irreversible. I don't know if you want to opine on that a little bit, Nate.
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C
Yeah, so unfortunately, we get flexibility when it comes to bonus depreciation. We're actually going to get flexibility this year with the new 100% bonus depreciation. So essentially, when you file, you get to make the choice of whether or not you want to take 100% bonus depreciation or you can choose not to, essentially. So let me say this too. So there's 179 and there's bonus depreciation. You must opt into 179 deductions. Bonus appreciation, you must opt out of a lot of times. Tom and I both see this all the time where CPAs choose to always opt out for the clients. Right. Because, oh, depreciation recapture or things like that. Right. A lot of times we don't want to do that. We don't want to make that election. We want to have the max benefits in that tax year so we can get max tax savings. Unfortunately, if that CPA does it without talking to the client that means that person has no ability to go back and do a retroactive cost segregation study if they decide to change their mind. Or they've never applied one before. Right. Unfortunately, it looks like it's a default box at times, depending on the software that keeps you from ever going back and doing a retro cost seg. Which is disappointing to hear when you realize you could have gotten maybe 30 to $50,000 of tax savings on a short term rental or another rental property you've got, right?
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Absolutely.
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Hey, real quick, if you've been a longtime listener to the show, then you know we give everything away for free from how to use the real estate professional status and the short term rental loophole to save tens of thousands of dollars on taxes to upcoming tax changes. We don't hold anything back. And the only way we're able to help more real estate investors is if you rate, review and share the show. It just takes 15 seconds to leave a quick rating review or share with a friend who may find this information useful on their real estate journey. That's all for now. We'll dive right back into today's episode.
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B
Here's a little case study that I saw on a client that came across my desk. I reviewed his return. So here's the story, right? So it previously was a passive investor, right. Did not qualify for reps and in this case he did not invest in short term rentals, his real estate professional status type of matter. And he had substantial holdings on his substantial real estate holdings that he acquired over the last few years. And he now qualifies for reps now in the current year. So what happened was his CPA went back and elected out of bonus depreciation on just regular like renovations, like little renovations he was doing on the five and 15 year property. So that total up to little numbers back then in the, in the prior years. But now fast forward, he's now eligible for the real estate professional status and he could have if he didn't elect out a bonus depreciation or cpa, didn't elect out a bonus depreciation, gone back, done retroactive cost segregation studies on some of his properties that it made sense to do and he could have pulled that forward to his current year tax return. Now he does qualify for the real estate professional status leading to tens of thousands of dollars in tax savings. And unfortunately because bonus depreciation was elected out of that was a non option at this point. And it's just very painful to see.
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C
Yeah. So essentially this is a permanent election. I think Tom and I Both said that if we didn't, this is permanent. That means there's no going back. Right. That means there's no chance to go back and make a change ever again. Right. So that removes the optionality in Tom's client's case where, hey, they're not hitting reps today, but maybe in the future they're going to hit reps. Maybe they really are going to get more into real estate and leave the W2 job to manage their properties, be a real estate agent, be a developer, and by doing that, by electing out a bonus way back when, when felt like it didn't matter, becomes a big deal in 2025. Consult with your taxpayer. I have a client that we're going to opt out of it and we're going to use 40%. We're going to use 40% bonus appreciation because it just makes more sense. They need to spread the deductions out so there's times it makes sense. I'm going to say that's 5% and the other 95%, we shouldn't do it at least so we can leave the option for ourselves down the road. As a tax play.
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B
Yep. So just something to keep an eye out that if you receive your tax return and your CPA has elected out of bonus depreciation and you don't have a clear understanding of why, you might want to go back and have that conversation. If you're proactive, you'll know beforehand whether or not you'll be doing this. So you're all in good shape when it does come time to filing your return.
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A
The next one up.
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B
Okay, this is failing to make the real estate professional status, the Reps, the Dash 9 election, as we call it, or the other proper grouping elections you might find under 469. That is something that I think we've seen recently, which I think was problematic, or we might have saved the situation. But long story short, when you qualify as a real estate professional status, you need to materially participate in your rental properties by default. You need to meet a material participation test on each and every single one of your rental properties. And that could be quite challenging. Imagine trying to spend 100 hours or more on a big portfolio or trying to spend 500 hours or more on each of your rental properties very challenging to do. The good news is there is an election that allows you to treat all of your rental properties as one for the purposes of the real estate professional status. And then that means you only have to meet one material participation test across all of your rentals. Which is far easier. The thing is you actually have to go ahead and make that election.
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C
Yep. Yeah. So that's the Dash 9 election they're talking about there, Tom, is that essentially if you group your entire portfolio, right. Let's say you've got 15 properties and you manage all of them. It would not be great if you had to spend 100 hours on every single property. That's 1500 hours, right. That's a full time. We're getting pretty close into full. That's 75% full time job. Right. We're getting pretty close to what full time job is right there. But with this election we get to say, hey, we're going to grab the entire portfolio. Consider it one property, one portfolio. If we spend 500 hours plus more than any time than anyone else, you're good to go right. Now that only applies to long, what we consider ltrs, anything that has a long term lease or a long term contract and put in place. Short term rentals can't use a Dash 9 election. But there is a similar business election that can be used for short term rentals that same rules apply. Let's say you've got a pretty massive or nice short term rental portfolio that you're managing all on your own. Same rules. If you spend 500 hours on that portfolio, you qualify regardless of how much time anybody else puts in. That could mean you manage two properties yourself. 250 hours. 250 hours, 500. That means you could have property managers on the other two potentially. So that actually is super helpful and gives you optionality. Maybe you're doing a big rehab in one year and so something like that. So just FYI, there's flexibility and possibility with this. There's a lot of great options to use.
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B
Yeah, absolutely. And it goes beyond just the real estate professional status too. There's other, there's all the elections. A dash for election they call you group businesses together, for example, short term rentals are very common here, but it doesn't, it's applies to much other types of businesses. Yeah. So it's something that you want to understand that you need to be made also under that same dash for election there's the ability for you to group say a dental practice, for example, together with a dental office. And that election has to be made in the first year that they're both kind of together. So you want to make sure that not only that the proper elections are being made, but they're being made at the right time. So this is something to keep in mind. Again, proactive advisory. You are getting the stuff already handled way before it comes time to even file your tax return. But these are just a lot of mistakes that we see come across our desk.
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C
Yeah, no, absolutely. These are things that our team always is looking for it. Right. To see, like how can we optimize these things? Can we go back and fix them? Right. Those types of things. One thing that's kind of small with the failing to make a rep selection, the Dash 9 election is net investment income tax. So that's a 3.8% surtax. I have a client right now who basically has overpaid a million dollars over the past four years by their tax preparer not having made that proper election. And they would not have made that election had they not come and sought different counsel and come to us to ask about, hey, we are thinking we don't need to do this. And that would have been another like $500,000 of net tax. So always little things to look for here, right? Always making sure that everyone's buttoned up and has these things put in place.
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B
Absolutely. There's a few more here that we're going to go through here today. This is not all of the ones.
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A
That are out there.
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B
These are just common ones that we see. The next one's going to be failing to carry forward form 8582, which is where your passive activity losses are reported. So if you're a passive investor, or perhaps you know you were a passive investor at some point in the past, good chance that if you're investing in real estate that you had losses from your properties that you weren't able to take against your W2 or business or other non passive income. And when that happens, they get suspended and carried forward to future years where you can use them when you have passive income or you sell a property for a capital gain. Okay. And sometimes it's just not reported, it's not carried forward. So you could have one year, just say 2024, for example, where it was reported in 2025, where it just goes missing and that becomes problematic. And I've seen clients in situations where they had substantial passive losses that could have helped them on the sale of a property, for example, and they just didn't have it on their most recent tax return because their CPA failed to carry it forward. So it is something out there. And if you want to make sure that when you receive your tax return that that is being done properly.
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C
No 100% Tom, like the 85, 82. So I tell everybody is like go check that yourself, go see how many passive losses you have. So when you think about selling around a property and you're like, I'm going to get a big gain on this, you get to go look and see, hey, how much saved up losses do I have that I'm going to get to use that actually helped me this year. All right? And so also double checking that you're looking at the next, like you said, when you change CPAs, make sure that those are properly accounted for. Point those out, remind, right? Sometimes we need reminders too, right? Taxpayers are people, right? We are also people. We're not Cloud, we're not Chad, GPT. We are also people, not bots. So sometimes we need a reminder of that stuff too. It's like, hey, don't forget I've got all these carryover losses. I'll make sure they get applied or that they cared over properly, right? Absolutely.
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B
Absolutely. Something you don't want to miss. Next up, we have wrong entity reporting. Okay? So sometimes people have, they think they have a single member llc, when really it's a multi member LLC that has a partnership tax filing requirement and that's sometimes overlooked. Extensions aren't filed, it's maybe misreported and that just creates issues. So you want to make sure that the proper tax returns are being filed for your entities based on how they're.
- [23:36]
C
Classified, right, Tom, like so here are the most common LLCs that we see, right? There's a single member, there's a, there's a multi member, which is a partnership, and there's the S Corp, the S Corp and the partnership. Like Tom just mentioned, those extensions are due by April 15th. You have to file. I'm sorry, not April 15th, March 15th. You have to file those by March 15th. A lot of times, unless you live in a community property state, and there's only a small handful of those, I don't even think 10. But unless you live in a community property state, if you and your spouse have an LLC together, guess What? Whether it's 1% ownership or 50% ownership, you now have a multi member entity. So what that means is that means you have a partnership tax return, unfortunately. And that means, let's say, unfortunately, this means you have a new filing requirement, you got to take care of a new tax return. And if you don't do that, it could be late penalties like we talked about earlier. It could also mean the IRS is looking at you and maybe they find this out and go, hey, you should have filed this years ago. That's Actually, now, now you have a late tax return and late penalties and interest. All of that starts to stack up and creates a bill, unfortunately. So don't want to miss that. S Corp is the other one that we see all the time where someone misreports a rental property into the S Corporation. Right? We don't. And that's. Look, we can't say that enough on this podcast. S Corps and rental properties don't generally mix, so we need to be very careful about what's getting put into an S corp or when we're making an S Corp election. Right? So hey, if your tax pro saying you need an S Corp, I honestly say get a second opinion, talk to another cpa, shoot us a message, we'll talk to you and tell you probably don't get an S Corporation. Right? And then the single member LLC, right. Like I said, generally single member LLCs, they just wind up on your personal tax return. Easy stuff. But if you add your spouse, a partner, et cetera, that can create issues. There's other the weird tenants in common tic interest structures too, that exist out there. Look, those also are really easy to break, right? The IRS does not make this easy. They want everybody to report their share of income, and it's not the easiest thing in the world. So make sure that you're making the right elections and filing the right things on the right tax returns. Otherwise it can create a bit of a mess.
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B
Absolutely. Absolutely. All right, we got one more here.
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A
And actually I thought of one more.
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B
As we were talking that we'll briefly touch on. This last one is not filing at all. Okay. And believe it or not, I see this quite frequently, more frequently than I think you would imagine. I'd say several times per month. Not even kidding. There's people coming to us saying, I haven't filed my tax return since 2020, 2020, since 2019, you name happens, and usually it's a result of waiting on K1s too long. It's you, you don't think you actually have to file or I have no, I don't owe any taxes, I don't need to file my tax return. Well, that's first of all, not always true. Secondly, if you're in the game of real estate, eventually, and I've seen this happen now multiple times, your lenders are going to start requesting your tax returns at some point, and if you can't produce those, you're going to be in hot water. And now you have to go back and this, this happens and you have to go back and you have to have find somebody who can go file 2020, 2021, 2022, so on and so forth. And it just creates a big mess. And look, if you're making money out here in the United States of America, which I hope everybody tuning in is, chances are, chances are you have a filing requirement, and you do not want to put that off. It just creates a whole bunch of mess, complexities, potential penalties and interests that you just, you want to avoid.
- [26:58]
C
Yeah, Tom, I saw this get posted on social media. Is that like a lot of people take a tax hiatus this year or they're choosing not to file their tax return. Let me tell you, like Tom just said, that's how you lose a lot of leverage with the IRS if you do that. It is not something I recommend. Look, I understand not wanting to pay taxes. I understand that's why Tom and I do. What we do is that we don't want people to have to pay all their taxes. But at the end of the day, you need to file these returns because that way you are going to be up to par with the irs. And whenever you're up to par with the irs, you can get options, you can have opportunities, you can abate penalties, you can have flexibility with them. Right. But if you have five years, like Tom said, of no filing, the IRS really is like, hey, you just kind of just told us to like that you don't want to mess with us. And so, sorry, we're not going to give you a lot of wiggle room to do anything here. And so we want to avoid that as much as possible. Creates audit risk, creates triggers. Because then, hey, let's say you go back and you file that 2020 returned, right? That's where six years ago, at this point, that 2020 return might have had K1s that you forgot about, might have 1099s you forgot about. And that's how you absolutely get picked up by the irs. And so, yeah, there's three years of statutory limitations, et cetera. So don't forget about that too. Right? Is that like, hey, after three years, the IRS technically can't go back unless they find fraud, which if they will, they'll try and make that case a lot of times if they think there's fraud existing there. So just an overall FYI there, please file your tax returns. Yes.
- [28:16]
B
Look, I'm not a big fan of authority, so don't get me wrong when I say this, but I just can't imagine not filing my tax returns because it's going to Open up a whole bunch of can of worms that you don't want, okay? So if you're making money, file your tax returns as part of doing business. It's part of participating in this economy. Just do it and do it timely. And you know, Tom, if you're, if.
- [28:37]
C
You'Re driving on the highway and you know there's a place where there's someone who's right there that generally hangs out when you're speeding. Right. You know there's a cop that's generally hanging out. Right. You probably shouldn't speed there unless you really just want to take that risk. And you may or may not pay that $200 ticket, $300 ticket, whatever it is. And so you could take that risk. But me personally, if I know that's where, that's where I know where the police are hanging out, I'm probably not going to speed in that area. Same thing here with the irs. If you know they're going to be hanging out, looking at your tax returns. Maybe not sure that I want to take that risk on, have to pay a bunch of extra money to them.
- [29:08]
B
Yeah, absolutely. Absolutely. The bottom line is file your tax returns, do the right thing. One more bonus, one that we did not list here that I'm going to call out because it happened to be one of our larger clients had this. And this kind of bleeds through, like a lot of these actually bleed through. It's like proper planning and advisory and paired with tax filing will eliminate a lot of these problems for people or a lot of these mistakes. And one of them was partial asset dispositions.
- [29:32]
C
Right.
- [29:33]
B
We had one of our largest clients, we review these returns just a few years back now, but just to kind of show you the magnitude of the consequences of some of this could be. It's actually a positive story, but we found that There was over $1 million in partial asset dispositions that this, this taxpayer, his client was entitled to, that was never reported by their prior CPAs. So these little things are the reasons why you want to work with a real estate specialist and not just a generalist. Because generalists oftentimes, they just don't know the nuances. They don't go in depth on these areas. And you're often either making mistakes that cost you penalties, interest, sometimes mistakes that are costing you tens of thousand dollars in tax savings that aren't always fixable, like the bonus depreciation situation. So when you have a proactive advisor who's on your case knowing and understand your situation, they can help you navigate what you can do what you can't do and so you understand why you're doing what you're doing and you ultimately come out with better tax outcomes when it comes time to filing your tax return. So, you know tax filing and not all tax preparers are created equal. Hate to say it, but that's just the case.
- [30:38]
C
So no, it's an awesome opportunity. If you have rental properties, anything like that, it's good to comb over and see, oh yeah, that fence established in 2024 that you replaced two years later. Get that off the books, right? Like maybe that's not like massive tax savings. But again, like we've said multiple times this episode, there are little things that we can do to help us accumulate tax savings. Right. Maybe it's not all one. Like, sure, we can do a lot of big moves and big swings, but after we make those, it's in the little. Like, it's like with all sports teams, right? Sure, you can smack home run like you can score 199 yard touchdowns, but it's the process that got you up to that that was super important. So it's like removing the pads, paying your tax estimates on time, not paying penalties. Right. Saving those little chunks here and there that eventually help you get up to a place where you can make the big swings again.
- [31:24]
B
Absolutely. So if you're working with a general CPA and you're getting into the big leagues of real estate here, you're adding more properties, things are getting more complex for you. Consider working with a real estate specialist. We are still taking on clients for the 2025 tax year. So if you are looking for a new cpa, we truly believe that proactive tax advisory combined with specialty tax reporting, meaning people actually know how to file everything that we're just talking about leads to better after tax outcomes at the end of the day. So go ahead, click the link in the show notes to this episode or on the video on YouTube. Wherever you're watching, request a discovery call. We'd love to learn more about your situation, how we can help you avoid all these mistakes and ultimately reduce your taxes so you can take that money, you go reinvest into your portfolio, go take that vacation, go buy that car. Whatever you want to do with the tax savings is up to you. But bottom line is you should be working the real estate specialist if you're in the game of real estate. So click that link and we'll catch you on the next week's episode of the Tax Smart REI podcast.
- [32:23]
A
The Tax Smart Real Estate Investors Podcast is for general information purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. Information on the Podcast may not constitute the most up to date legal or other information. No reader, user or listener of this podcast should act or refrain from acting on the basis of the information on this Podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Use of and access to this podcast or any of the links or resources contained or mentioned within the podcast show or show Notes do not create a relationship between the reader, user, or listener of the Podcast and the host, contributors or guests. Any mention of third party vendors, products or services does not constitute an endorsement or recommendation. You should conduct your own due diligence before engaging any vendor. For more information, reference the show notes or description of this episode.
- [33:12]
D
Thanks for listening to today's show. If you enjoyed the show, please find us on itunes and leave us a review. You can also email us at. Contact therealestate CP with any feedback or topic suggestions. We are always taking on new clients and with the new tax laws in play, you really don't want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs to become a client. Navigate to our client page@therealestatecpa.com and fill out a web form with as much detail about your situation as possible. Thanks so much for listening Listening. Have a great rest of your weekend.