Real Estate Accounting

3 Tasks Entrepreneurs are Better Outsourcing

OutsourceAs a business owner, it can be difficult to delegate important tasks. When you complete them yourself, you know they will be done correctly and in a timely manner. Even so, if you want your business to grow, and keep expenses low, there are three tasks that you should consider outsourcing.

 

Website and Graphic Design

By outsourcing your website and graphic design, you will have access to an expert in the field, on demand. The person or company you outsource to will have the equipment, experience, training and knowledge to provide you with design concepts that would otherwise be beyond your reach.

You will also receive a professional product which is doubly important as your website is your online business card. This is one area that you want and need a professional’s assistance.

Payroll

As your company grows, the complexities of your payroll grow as well. In addition to saving time and money, payroll is one area of your business that the government takes great interest in. Payroll specialists make it their job to stay current in government regulations which means they will keep you and your company compliant.

In addition, payroll companies can provide you and your employees with an added layer of security. This can reduce the risk of embezzlement, identity theft, and interference, by an employee, with company records for financial gain.

Accounting and Tax Returns

Much like payroll, your accounting and tax returns are not an area of your business where you can afford errors. Without specialized tax knowledge, you run the risk of missing deductions leading to paying higher taxes than necessary or to making errors that result in penalties.

One of the main benefits of outsourcing any task is that while you may pay more per hour for the task to be completed, you will save much more money, in the long run, than if you hired a full-time employee when you take into consideration salary, benefits, taxes, health insurance, as well as the overhead to provide space for the employee to work. In the end, outsourcing can be a cost efficient way to expand your business.

 

If you are interested in outsourcing payroll and/or outsourced accounting, then call 949-759-5626 and ask for Jerry Morey.  Our initial consultation is free.

 

Morey and Associates is an Orange County California CPA Accounting Firm.  We service small businesses and high net worth individuals throughout Orange County and have convenient offices in Newport Beach and San Clemente.

Tax Treatment for Bitcoin Payments

BitcoinIf you’ve paid attention to the news the last few years, you will have heard of Bitcoins. In fact, you may even have considered accepting them as payment for services or product sales. Before you do, you’ll want to make sure you have an understanding of how the IRS treats Bitcoin payments.

First, it’s important to be aware of the fact that the IRS does not consider Bitcoins, which are virtual currency, as a legitimate state-backed currency. Instead, they see Bitcoins as property.

This means that the tax rules that apply to property transactions will also apply to payments received in Bitcoins. When a person, or business acquires property, they are required to record the fair market value of the property. This will become the owner’s basis for the property.

Once the property is sold or exchanged, if the fair market value of the property has increased, then the owner will have a taxable gain. On the other hand, if it has decreased in value, the owner will have a loss.

This means that if a business owner sells a product today and receives Bitcoins worth $100 but then converts them to dollars next week and the value has increased to $120, they will have a gain of $20 that will be taxed as capital gains.

This becomes even more complicated when multiple Bitcoin transactions take place. Each transaction needs to be tracked separately and each will have its own gain or loss depending on the current valuation of Bitcoins when they are converted to dollars.  The amount of paperwork and record-keeping becomes significant.

There are a couple of workarounds for this. First, each transaction can be converted to dollars immediately. Secondly, there are now Bitcoin merchant service providers that will deal with all of the backend record-keeping that is necessary. This allows businesses to accept Bitcoins without ever actually dealing with them.

The IRS ruling treating Bitcoins as property turned the Bitcoin world and those who want to accept them on their heads, but technology and even the IRS will eventually catch up to the new reality of virtual currencies, but it may take awhile.

If you are tired of paying too much in taxes, call 949-759-5626 and ask for Jerry Morey.

 

Morey and Associates is a Southern California CPA Firm with offices in Newport Beach and San Clemente.  We service all types of businesses and high net worth individuals.  We also have additional expertise with real estate accounting, dental accounting and medical practice accounting.

 

Section 179 Tax Deduction for Orange County Businesses

Section 179 allows a business to deduct the total cost for qualified leased, financed, or purchased equipment in the year it was purchased instead of depreciating the cost over the life of the equipment. Typically, however, Congress waits until after the first of the year to renew this section which can hurt small business owners and manufacturers as well as farmers, dentists, and medical providers.

Very often, Congress doesn’t get around to renewing tax breaks, such as Section 179, until well after the end of the year. Then they make it retroactive. This creates all sorts of issues for businesses who attempt to plan purchases with tax breaks in mind. Often, small businesses will miss out on the tax altogether.

Section 179 2While tax breaks such as Section 179 are typically renewed each year, it isn’t a given. That means businesses as well as farmers and even those in the medical profession won’t know if they are allowed to deduct $25,000 or $500,000. The final approved amount depends on whether or not the larger deductions are renewed. If not, the limit reverts to the original $25,000.

This can make a buying decisions difficult. For example if a farmer needs to buy a new combine, the farmer is looking at an investment of up to half a million dollars. If Section 179 isn’t renewed at the higher levels, this investment may need to be reconsidered. The same goes for medical or manufacturing equipment.

Still, for a small business, even the limit of $25,000 can make a tremendous difference. As off-the-shelf software also qualifies for this deduction, a small business could update their software to enhance efficiency therefore increasing their bottom line.

Tax planning is a critical component of a successful company. That’s why it is so important for Congress to act quickly and in a timely manner, so small businesses can plan for the next year while they still have the time to implement smart decisions. Small businesses are the backbone of this county and do drive the economy, and Congress shouldn’t forget that.

If you are seeking to lower your taxes legally, Morey and Associates can help.  Simply call 949-759-5626 and ask for Jerry Morey.

Morey and Associates is a California CPA Accounting firm with two convenient offices, Newport Beach and San Clemente.  For additional expertise, Morey and Associates provides boutique accounting services for real estate accounting and medical practice accounting.

Tax Benefits of Health Savings Accounts

While most people are familiar with tax benefits other types of investments, often times, they are less familiar when it comes to the tax benefits of health savings accounts. There are three such benefits that you should know about and take advantage of.

Health Savings AccountPerhaps the largest tax benefit is that the money that goes into the account is tax-deductible. Also, if the money is invested through a company payroll deduction, all contributions are made pre-tax.

The second tax benefit comes on the interest side. Health savings accounts, do earn interest, and this interest is tax free. This allows an individual to use the account for long-term appreciation as the money does grows tax free. In that regard, it is very much like a Roth IRA with the added benefit of a current tax deduction.

The third tax benefit is that the owner of the account has the option of taking tax free withdrawals for medical expenses. These expenses must quality, but they do include almost all services provided by licensed health providers as well as substance abuse treatment and prescriptions.

Currently, in 2015, an individual can contribute up to $3,350 and a family can contribute up to $6,650. For those over the age of 55, an extra $1,000 contribution per year is allowed.

Finally, it is important to note that health savings accounts do not have a limit on carry-overs or a requirement on when the funds must be used. This is what enables them to be used for long-term savings to offset increased health-care costs or additional costs after retirement.

While health savings accounts haven’t always been on the forefront of investment options, with health insurance policy’s current rising deductibles and out-of-pocket expenses, more individuals are qualifying for the accounts, and with the tax benefits, it’s wise to give them a look.

If you are tired of overpaying taxes, then give us a call at 949-759-5626 and ask for Jerry Morey.

Morey & Associates is an Orange County CPA Firm with offices in Newport Beach and San Clemente.  We are a full service CPA Firm working small businesses and high net worth individuals.  For additional expertise, Morey & Associates has developed additional expertise in real estate accounting to help property management companies, real estate investment trusts, and commercial investor groups.

Tax Rules – Convert Primary Residence to Rental Property

If you’ve made the decision to rent your primary residency instead of selling it, there are tax implications to be aware of. The tax code in this area can be complex, so it’s important to understand the rules and regulations upfront before you take the plunge.

Residential Real Estate - CA BeachFirst off, a residence is considered primary when you live in it full-time and it is not rented out for more than two weeks in any given year. Conversely, a residence is considered rental property if you use it personal use for no more than two weeks of the year or 10% of the days it is rented.

Tax Implications

Once you have converted your primary residency to a rental property, you will be required to report any rental income as taxable income. On the reverse side, you will also be able to deduct expenses for repairing the property as well as general maintenance.

In addition, the IRS does allow you to use depreciation of the property to offset income received on the property as well as taking other deductions such as property taxes, insurance, mortgage interest, utilities, and association fees.

Any costs over the amount of the total rental income cannot be deducted unless you meet the following conditions:

  • You actively participate in all real estate activities for the property
  • Your adjusted gross income is under $100K for the year
  • Your total losses for all real estate activity does not exceed $25K for the year

The basis for depreciation for rental property is the lower of your adjusted basis – capital improvements plus purchase price – or the fair market value. The property must be depreciated over a 27.5 year period. Also, you are only allowed to depreciate the portion of the residency that is used for income generation.

If you are searching for a CPA Firm that specializes in Real Estate Accounting, call us at 949-759-5626 and ask for Jerry Morey.  We offer a free initial consultation.

Morey & Associates is a Orange County CPA Firm working with clients throughout Southern California.  We have convenient offices in Newport Beach and San Clemente.

Using Cost Segregation to Save Taxes for Orange County Businesses

Cost segregation is the process of identifying your assets and classifying those assets correctly for the purpose of paying federal taxes. In this process, personal assets that are mixed with real property assets are separated out, so all assets can be depreciated properly and potentially increase your bottom line.

Cost Segregation Studies

Cost Seg StudyA cost segregation study is performed to determine which assets can be claimed as personal property instead of real property. These items usually include indirect construction costs, non-structural elements of buildings, and exterior land improvements.

By separating these assets, they can be depreciated over a shorter term which will reduce your current income tax liabilities and increase cash flow. This decreased depreciation period is typically between five and fifteen years instead of the twenty-seven and a half to thirty-nine years for non-residential real property.

For example, items such as carpeting, wall paper, parts of the electrical system, and even sidewalks and landscaping all qualify for the shorter depreciation periods.

Eligibility and Advantages of Cost Segregation

To be eligible for cost segregation, a building must have been purchased, remodeled, or constructed since 1987. This method of tax reduction is best used on new construction, but it can be used retroactively on older buildings as well.

Beyond the benefits of reduced tax liability and increased cash flow, a cost segregation study will provide your business with an audit trail of all costs and asset classifications. This will help put to rest any unwanted inquiry from the IRS in its early stages. Finally, during this process, you may identify possible ways to reduce your real estate tax liabilities as well.

While there are some costs associated with performing a cost segregation study, as long as the assets in question are valued over $200K, it’s worth the time and expense to complete the study and categorize these assets correctly.

Morey and Associates, CPA helps business owners lower their tax liability and cost segregation is just one tactic to make this happen.  We work with all types of businesses throughout Orange County from our offices in Newport Beach and San Clemente.  For clients that are have significant real estate and fixed assets, we have developed a specialty in real estate accounting.

Call us at 949-759-5626 and ask for Jerry Morey.

Commercial Lease Laws and Process

Commercial LeasesIf you have made the decision to bring your dream of owning your own small business to life, you may now be looking for the ideal space to lease for your business. You’ve leased apartments or rental homes before so this shouldn’t be much different right? Wrong. Commercial lease laws bear little resemblance to their residential counterparts. Likewise, the process of locating commercial property and negotiating a lease agreement is often very different from the residential rental process. Laws relating to the lease of commercial property will vary somewhat from one state to the next; however, there are significant commonalities. Understanding some of the common mistakes and pitfalls that befall first time commercial tenants may help you avoid them.

Locating A Property: Unlike locating a residential property, which is often done without an agent, you may wish to use one to locate and negotiate a commercial lease. Aside from having access to properties that may not be advertised to the general public, a Real Estate agent should be able to explain any confusing or foreign lease terms, and prevent you from being taken advantage of as a first time lessee. There may be a direct cost involved; however, it could also be indirectly covered by the landlord through his or her agent’s fee.

Lessee Beware: The old saying “Buyer beware” applies to commercial leases. In most states, there are numerous laws that afford a residential tenant certain protections and defenses in a lease agreement, even if they are not specifically enumerated in the agreement itself. This is not the case in commercial leases. Lawmakers assume that commercial tenants are more experienced and, therefore, not in need of additional protection. As a result, the terms of your lease control your agreement. If it is not in the lease itself then it does not exist. Consider having your attorney review the lease before you commit to the agreement.

Lease Terms: There is no industry standard for commercial leases; however, there are some lease terms that are typically different than those found in residential leases. Commercial leases tend to be for longer periods of time — two years and up. Rental price is often based on usable square feet as well as a percentage for shared space, such as a parking lot or lobby, if applicable. As a commercial tenant, you may be responsible for minor repairs. You may even be responsible for major repairs. On the plus side, as a commercial tenant you will likely be able to make improvements to the property, unlike in a residential lease.

If you are searching for an accountant that understands real estate accounting backwards and forwards, call Morey and Associates CPA at 949-759-5626 and ask for Jerry Morey.

Morey and Associates works with all types of businesses in Orange County that need additional expertise with real estate accounting and tax matters.

 

Vacation Home Rental Tax Rules

If you have ever considered renting out your vacation home, before you do there are several tax rules you will need to keep in mind to help you stay on the right side of the IRS. Luckily, they aren’t too complex, but they will guide you in determining how you want to use your vacation home.

Number of Rental Day’s Per Year
Vaca Home RentalsIt is important to understand that the number of days you rent your vacation home has a direct impact on how the IRS views the property. For example, if you rent your vacation home for 14 or fewer days, you will not need to report the income on your taxes.

If, however, you decide to rent your home for more than 14 days, you become a landlord, and all rental income will need to be reported. You can also deduct rental expenses, but keep in mind, the expenses will need to be allocated between when the home is used as a rental property and when the home is used for personal vacations.

Finally, if you use the home more than 10% of the number of days it is rented, or more than 14 days for personal use, it is still considered personal property, but you are allowed to take a deduction for rental expenses up to the amount of rental income received; although, losses cannot be taken as a deduction.

The Definition of Personal Use Days
What becomes most important, besides the number of days you rent the home, is the number of personal use days. Even when a family member is occupying the home, instead of yourself, the IRS considers those days personal use, regardless of whether or not the family member is paying rent. This is also true of days you donate the home to a charity auction.

The advantage to keeping your personal days to 14 days or less or 10% of the rental days is that the home is then considered a business. As such, you can deduct expenses and take up to a $25,000 loss each year you rent the property depending on your income. It’s important to know that the days you spend maintaining the property are not included in personal use days.

Morey and Associates CPA is a Newport Beach CPA Firm with additional expertise in real estate accounting.  If you would like help lowering your tax liabilty, call us at 949-759-5626 and ask for Jerry Morey.

Home Office Tax Rules

Home OfficeThere was a time that determining the correct deductions for your home office was complicated and could lead directly to an audit. Luckily, those days are in the past. The IRS no longer considers a home office a red flag, and they have found ways to simplify the process of taking this deduction.

Before 2013, business owners that worked out of their home were required to determine the actual expenses of their home office. This could include items such as utilities, insurance, and mortgage interest. The amount that could be deducted as a business expense was determined by the percentage, of the total square footage of your home, that was used for office space, but in 2013 that all changed.

For taxable years of 2013 and beyond, the IRS has introduced a simplified option. This allows business owners to multiply a prescribed rate by the square footage of the home that is being used as office space to determine the allowable deduction.

This change permits business owners to reduce the need for recordkeeping as actual expenses no longer need to be tracked.

There are two requirements that a business owner needs to meet to be eligible for the home office tax deduction. First, the area of your home that is used for your office must be used exclusively for conducting business. That means a kitchen table is not a home office, but if you have a room in your home that you use for office space exclusively, that would qualify.

Secondly, your home office must be your principal place of business. That doesn’t mean you can’t have an office elsewhere, but you need to be using your home office for meetings with clients, or some other activity that would suggest it is not simply an area that you work in from time-to-time.

If you have a home office, don’t hesitate to take the deduction you are entitled to. With the simplified option to determine your deduction, this is one time the IRS has made it too easy to pass up.

Morey and Associates CPA is a Orange County CPA Firm with offices in Newport Beach and San Clemente.  Our services are designed to minimize your tax liability within the legal limits for business owners and high networth individuals.  If you would like help lowering your tax liabilty, call us at 949-759-5626 and ask for Jerry Morey.

 

Tax Planning for Medical Office Buildings – Doctors and Dentists

Recent tax law changes have created the need for thorough tax planning for dentists and doctors who own office buildings. This article will walk you through the maze of tax complexity to achieve the best tax outcomes for your valuable office real estate.

Medical Office BuildingSuppose that you’re about to build a new office at a cost of $500,000. Traditional planning for dentists and doctors who practice as S corporations would be to own the building in a separate LLC and lease the space to generate rental income from the medical practice. This is excellent planning to create a legal separation to protect the building asset.

But this structure can be the source of some major tax headaches, especially under recent tax provisions. For newly constructed buildings, this two-entity structure creates the potential for large lost tax deductions. This is due to the tax treatment of rental LLCs as passive activities.

Rental income is passive income. In most cases passive losses cannot be used to offset income from wages or income from the medical practice. Therefore, net rental losses may offer no tax benefit in the current year.

For new office buildings, there are two sophisticated planning steps that must be properly implemented to benefit from the large depreciation deductions available to medical practice who construct new office space.

According to building depreciation rules, the great majority of building costs must be depreciated over a 39-year life. This creates little potential for tax savings from constructing a building, however, under legal precedents set by tax court cases, dentists can segregate the costs of building components that are incurred directly for patient treatment.

These costs may be depreciated much more rapidly in as few as five to seven years. By performing a cost segregation study, dentists can reallocate as much as 25% to 40% of the building costs to rapid depreciation methods. The first step toward implementation is having a sophisticated cost segregation study performed.

Unfortunately, without implementing a second step, most of the tax benefits from performing a cost segregation study are lost.

Assume that with the cost segregation study, additional depreciation deductions in our building example in the first year are $50,000. Further assume that this large extra depreciation creates a tax loss in the building LLC of the same $50,000. Since this loss is a passive loss, in most cases it cannot be used to offset dental practice income. This is an effort in futility.

The important second step to avoid this outcome is a special election called an aggregation election. If the dentist meets the requirements to aggregate, the building and practice can be viewed under tax law as a single economic unit, and the large depreciation deductions in the LLC from cost segregation can be used to offset dental practice income, with an appropriate election.

For dentists and doctors who have owned existing office buildings for some time (as opposed to constructing new buildings), a different need for tax planning exists under new tax laws. With less depreciation and interest deductions, there is the potential for rental income in the building LLC, instead of rental losses.

As rent amounts grow and deductions decrease, the possibility of significant rental net income is normal. Passive income in the past was viewed as a good thing since it was not subject to the same payroll taxes as dental practice earned income.

Under new tax laws, passive income is a bad thing, subject to the new 3.8% Medicare surtax, which is in addition to any income taxes. Without proper planning, medical practices can convert earned income subject to normal income taxes to passive income in the LLC, subject to the new Medicare surtax of 3.8% for married couples with incomes of more than $250,000. Further tax planning is needed.

Under the laws that exist in 2013, the appropriate strategy to minimize taxes for medical practices with existing office space is quite complex. The first step is minimizing rental income from building rents from the practice to avoid passive income. The IRS can challenge rents that are under fair market value norms, so one must be wary of making rents too low.

An alternative approach would be to implement a large deductible retirement plan arrangement to drop married income below $250,000. The retirement plan strategy can be a double win with dental office building rents.

In summary, dental and doctor office buildings present significant tax planning opportunities under the current tax environment, along with the need for sophisticated tax planning strategies.

Morey and Associates is a CPA Accounting Firm serving Orange County CA.  In addition to serving most businesses, we have additional expertise in real estate accounting and medical practice accounting.  Our medical practice clients include dentists, oral surgeons, physicians, medical groups, and nursing facilities.

Call us at 949-759-5626 and ask for Jerry Morey.