Real Estate in an IRA, Part 2: Managing Assets in a Self-Directed Retirement Plan

August 18, 2014 by Bernadette Trafton Leave a Comment

Last week’s blog discussed setting up a self-directed plan that allows real estate in your IRA. As promised, this week’s topic covers how to properly manage those assets. There are specific rules you must adhere to in order to comply with IRS regulations so your self-directed IRA works for you instead of against you.

Now that you have set up your self-directed IRA, have it properly funded, and are ready to begin looking for property there are several things to keep in mind. While self-directed retirement plans allow many different alternative investment options, there are strict guidelines relevant to prohibited transactions and disqualified persons you must be aware of. Failure to comply could cause your IRA to suffer heavy penalties or even disqualification.

When exploring real estate options, know that your IRA is not allowed to purchase property from you or from another disqualified person. Your IRA is also not allowed to sell property to you or a disqualified person. Disqualified persons include:

The IRA holder and his or her spouse
The IRA holder’s lineal descendants (children, grandparents, etc.) and their spouses
The IRA holders lineal ascendants (parents, grandparents, etc.)
Investment advisers, managers and fiduciaries
Any corporation, partnership, trust, or estate in which disqualified persons have a 50 percent or greater interest
Anyone providing services to the IRA

Another important thing you need to understand is all property your IRA acquires is owned by your IRA and not by you. Any earnings gained, whether through resale or rental income, flow directly into the account. Expenses relative to the property must be paid directly from the IRA. When purchasing real estate in your self-directed IRA, it’s critical to plan for anticipated expenses in advance, so your IRA is prepared to cover them. If you have partnered on a purchase with other parties, your IRA only pays for its percentage of repairs and also must receive only its share of income.

Additionally, you are unable to use the property for personal purposes. For example, if you own a vacation rental you or other disqualified persons may not vacation there. The real estate was purchased to build wealth for your retirement. Using the property for personal purposes before you hit retirement age would be considered a current benefit and your IRA will be penalized, if not disqualified.

You are personally not allowed to perform repairs or maintenance on real estate in your IRA. Doing so constitutes “sweat-equity” and is considered a contribution to your account. The IRS only permits contributions to an IRA to be made in cash—and sweat equity cannot be measured in value. Repairs and maintenance must be performed by a third party—who is not a disqualified person—and paid at current market rates.

On the flip side, you do not have to hire a third party to manage the property in your IRA. The IRA owner is able to manage the property as long as you don’t perform sweat equity or pay for expenses out of your own pocket. Again, all income and expenses flow directly into and out of your self-directed IRA. Rent checks and other income must be written to the IRA and deposited directly into the IRA account. Income or expenses are not allowed to flow through the IRA owner for any reason.

Hopefully it goes without saying that it is crucial you perform due diligence when looking for real estate to acquire in your IRA. You want to find a decent property in a location suited for the purpose you desire. If you want a quick rehab-and-flip, the goal would be that the cost of the property plus the money it costs your IRA to renovate is low enough for your IRA to make a profit at resale. Location is key whether conducting a rehab or acquiring rental property—you want to be as sure as you can there is a market for resale or good potential for acquiring tenants for rentals.

If you have any questions regarding real estate in your IRA, please contact Kevin Collins at AdvantaIRA Trust by calling (617) 830-1070 or emailing Kevin@AdvantaIRATrust.com.

How should you choose your IRA Custodian for your investing deals?

July 1, 2014 by bostonareia Leave a Comment

Choosing an IRA custodian is as important as choosing investments. Some custodians do not allow alternative investments to be acquired as assets using your IRA. Some self-directed IRA administrators that allow alternative investments (such as real estate investing) may restrict the types of investments they allow as holdings. Additionally, there are strict rules and regulations one must follow when purchasing assets. If you make the mistake of acquiring an asset your custodian does not allow, you and your IRA may suffer harsh penalties handed down by the IRS. The same is so if you perform a transaction that falls outside the boundaries set forth in the rules that govern retirement funds. Access the Advanta IRA ppt that Kevin Collins presented at our meeting in June – Retirement Revolution Presentation

If you want to control your own investment funds in your IRA, you must first make sure you open an account with an administrator that facilitates self-directed IRAs. These accounts allow a myriad of alternative investments in them, such as real estate, private lending opportunities, precious metals, oil and gas options…and much more. As the account owner, you have the freedom to choose your own investments to build wealth toward retirement. The custodian acts only at your direction to acquire assets in your account.

Even though laws governing IRAs allow real estate and other non-traditional investments in your account, not all custodians allow those assets. A recent example of this was illustrated by the tax court in a proceeding filed by Guy Dabney. Although Dabney familiarized himself with IRS allowances of assets in IRAs, he failed to comply with the rules of his IRA custodian, Charles Schwab & Co., Inc., who does not allow real estate in the IRAs they administrate. Even so, Dabney performed an action to acquire the real estate that he thought would constitute a permissible trustee-to-trustee transaction. He had Charles Schwab wire $114,000 directly from his IRA to the company selling the property and asked the property be titled “Guy M. Dabney Charles Schwab & Co., Inc. Cust. IRA Contributory.” The purchase was made, however, the property was accidentally titled in his name. Dabney was able to have that clerical error officially fixed, but Schwab still sent Dabney a 1099-R form, declaring he had taken an early distribution which was taxable to him as he was not yet of the age of 59 1/2. Dabney did not report the withdrawal on his income tax that year, stating the real estate purchase was made by the IRA and / or should be considered a trustee-to-trustee transfer because of the way the property was acquired.

In considering the case, the IRS made several determinations. First, Schwab does not permit real estate investment purchases or holdings in their accounts; second, the title company to which the $114,00 was transferred was not, in fact, an IRA trustee and therefore, no trustee-to-trustee transaction was performed. There were a few other reasons the tax court based their decision on, which can be read in full in an article published by Parker Tax Publishing, and the withdrawal was considered an early distribution—and taxable for Dabney under IRS regulations.

The main takeaway here is that even though self-directed IRAs give you control of your investment decisions—you are responsible for adhering to your IRA custodian’s own set of rules regarding investments they will allow your account to hold. Not all custodians are created equal! Due diligence in researching a custodian that is a good fit for your investment endeavors is critically important. Dabney could have avoided his unfortunate complications had he decided to roll funds from his Schwab IRA into a self-directed IRA administered by a custodian that allows real estate assets and made the purchase from that account. Be sure to select a firm that is accessible, willing to discuss your transaction, assist you in completing the required forms, and ensures you provide the proper documentation. Most importantly, a firm that give you and your retirement portfolio the personalized service you deserve.

With Boston AREIA’s vendor, Kevin Collins of AdvantaIRA, you will get the personalized service you are looking for when doing your real estate investing deals in and around the Boston area. If you would like to learn more about how self-directed IRAs can build wealth toward retirement, please contact Kevin Collins at AdvantaIRA Trust by calling 617-830-1070 or emailing Kevin@AdvantaIRATrust.com

Attention Boston Flippers – Deals are flowing

June 25, 2014 by bostonareia Leave a Comment

Attention Boston Flippers, Real Estate Investors and Rehabbers in Boston, Buy and Hold investors and more!!!

Deals are flowing in and around Boston! The last few weeks have been incredibly exciting! Nothing pleases me more than when my new and seasoned Boston Real Estate Investors email and call me telling me about their deals!!! If you were at Boston Area REIA last week, you would have heard our Mentee Mike Fitzpatrick talk about his first deal! The exciting part is that Peg Graveline of JEM Property Group and I have been having almost weekly sessions with Mike and his partner Jacqui Pietrzak. We’ve been hitting hard on finding deals, contract negotiation and more. I know that Mike and Jacqui were probably sick and tired of hearing me push marketing and getting their website set up and more. But, in the end that paid off!!! Last week, a lead came in through their website that was created by our friends at Thrivehive! Yes, I will personally connect you with them, if you’d like me to! After the website being up for 2 months and actually live for only a month, a lead came through. Mike and Jacqui will tell the whole story in their blog “Diary of a Newbie Real Estate Investor”, but, they got Peg on the phone and after following her guidance, put the property under contract and are working through the deal right now!

Right before the meeting, I got another email, from one of my newest investors saying that he had a property under contract in Mattapan! He wants to wholesale this folks, so, if you are interested, contact me. This may be an awesome opportunity for those looking to buy and hold and could be great for those Boston contractors out there who are looking to get in the game and will do the rehab themselves.

I got another phone call right before the meeting from an investor who had a deal under contract and they were looking for hard money lenders. I saw them at the meeting and they let me know they were working with a lender and the deal was in progress!

Then I got an email from another Boston Real Estate Investor, letting me know that he had a deal. We are still vetting everything so, I won’t get into the where’s and the what’s of it all.

I’m getting so excited about all the activity, that I’m setting up a member specific email list to send the wholesale, buy and hold and other deals that are flowing through the group! Become a member today, to be the first to receive news of these deals! If you need another reason to become a member, be sure to check out all of the member benefits that can save members hundreds and thousands year. I’ve always said that it costs more NOT to be a member of BostonAREIA! My brother, who is a contractor saved 70% on paint through the Sherwin Williams paint discount alone! It was definitely more than the $175 it costs to be an individual member! Oh, and if you were at our last meeting and you didn’t become a member, expect an email from me with a coupon thanking you for being a visitor in June!

My life has been crazy the last few months. My mother has been ill and in and out of the hospital, I’ve been having tenant issues, family craziness and more. We all have this type of stuff going on in our lives. So, do me a favor and before you let anything get to you, stop, breathe and know, as my friend Bruce Decker says, “Remember that crap is just fertilizer for future growth!”

Happy investing!

DESIRE, COMMIT, SUCCEED!

Bernadette Trafton, Boston AREIA Chief Connector

5 reasons real estate investors may want to exchange your property

June 2, 2014 by bostonareia Leave a Comment

Good afternoon investors,

Vice President Certified Exchange Specialist New England Region (877) 781-1031 Toll Free patricia.flowers@ipx1031.com

I was talking to Patty Flowers from IPX 1031 Exchange Services the other day. I asked her what the main reason there were for real estate investors to exchange properties and why it’s important to know about this even as a beginning investor. She shared this article with me about the five reasons to exchange your properties.

FIVE REASONS TO EXCHANGE – A story about Appreciation, Depreciation, Cash Flow, Diversification and Tax Deferral

If a real estate investor bought an apartment building for $100,000 in 1975 and it is now valued at $1.8M dollars, the property has appreciated significantly and is now worth eighteen times what it was in 1975. Clearly, this was a great investment. But, like all investments, one should analyze whether it is now better to hold or to divest the asset. The apartment building is currently owned free and clear of debt. It has been owned for more than 27.5 years so it is fully depreciated and no longer eligible for annual depreciation deductions on the investor’s tax return. Reviewing the cash-flow, after property taxes, maintenance, and insurance, it produces net rental income of about $3,000 per month.

$36,000 per year on an investment property worth $1.8M amounts to 2% annual income on the investment. However, the original $100,000 investment has grown by 1800% and there is now $1.8 million dollars’ worth of equity tied up in one asset. Since interest rates are at historic lows, what better time than now, when property values are lower than they were a few years ago, to unlock some of that equity and exchange, tax deferred, into one or more properties with greater income and long-term appreciation potential?

Through an I.R.C. §1031 exchange, this real estate investor can sell his investment property and accomplish a number of tax and investment goals. A 1031 tax deferred exchange permits the investor to defer federal and state capital gains and depreciation recapture taxes. The investor can buy property with improved cash-flow, and if encumbered, with an interest deduction to be claimed. If the replacement property is greater in value than the
relinquished apartment building, then depreciation deductions will also be available for the increased basis (the difference between the purchase cost of the new property, less the gain deferred on the exchange of the old property). Additionally, because multiple properties can be acquired through a single exchange, the investor can diversify the real estate portfolio, thereby hedging the investment risk inherent in a single property.

Appreciation, depreciation, cash-flow, diversification and tax deferral are important drivers for doing a §1031 exchange. Investors should examine their real estate holdings and do the 5 point analysis suggested in this article. If repositioning a real estate portfolio is in order, the valuable tax benefits of a 1031 exchange should be considered. Investment Property Exchange Services, Inc. (IPX1031®) is a Qualified Intermediary providing a full range of tax
deferred exchange services across the country including forward, reverse and build-to-suit transactions. We look forward to helping you and/or your clients maximize qualifying investments through a §1031 exchange strategy.

Be sure to join us on June 19th when Patty breaks down the process of 1031 exchanges.

Is Flip (Flipping) a 4 letter word that starts with F?

May 20, 2014 by bostonareia 2 Comments

So, I was talking to my friend, business partner and seasoned investor Ken Olson the other day. He said that he had a bone to pick with me. He noticed that I use the words “flip” and “flipping” when talking about rehabbing and reselling properties in our adventures in real estate investing.

He said, “Give me a minute to explain, I know “flip” or “flipping” is nomenclature and widely accepted, but, trust me, any seasoned seller (Banker, REO Broker, Auctioneer) won’t listen to someone using that language and will not take them serious – it is too cavalier and wreaks of inexperience – if you want your investors that you are teaching to separate themselves, they will figure out a way to take “flip” or “flipping” out of their vocabulary.”

OK, point taken…, “But, Ken, Do you know that FLIP and FLIPPING are among the HIGHEST ranking words on google for real estate investing? More people search the term fix and flip or flipping real estate than invest in properties. Since the “flip this house” phenomenon, it’s much more accepted…and does amazing things for my SEO and google rankings…. :-)”

To which Ken replied, “Flip and flipping is a widely accepted nomenclature and so is “doing it” – both have cavalier attachments and in “my opinion” are unprofessional and wreak of inexperience.”

“Ok, Ken, we are NOT going to present using the word “FLIP” or “FLIPPING” to any banks. However, you and I can have this conversation 30 times and I will still market using the words FLIP or FLIPPING because new investors and folks looking for places to network type in “flipping houses” “flip houses in Boston”, etc…about 20 plus times more than they look for rehabbing and reselling.

It is what it is and the use of the word means different things dependent on the application. In marketing it is a golden word that can help rank a webpage high in SEO. It will, however, be a great lesson to the group – DON’T use the words FLIP or FLIPPING when talking to banks, brokers and others because it’s pretty much a “dirty” word and shows inexperience. However, when it comes to SEO please continue to use it in marketing. :-)”

See you at our upcoming meeting on Thursday 6/19/2014

DESIRE. COMMIT. SUCCEED!

Bernadette Trafton, Boston AREIA Chief Connector

Diary of a Newbie Real Estate Investor

May 5, 2014 by bostonareia 1 Comment

Good morning folks, Well Mike and Jacqui have been moving forward with their real estate business. Their website is almost complete, they’ve been doing direct mail marketing and Mike was able to go to a property with Peg and a few others with the agent he’s working with. A little over a month ago, I got a call about a property in Newton center. I figured that this would be a great learning opportunity for Mike. I called my co-mentor Peg Graveline of JEM Property Group and set up a time for them to go view the property. Mike took all the pictures and got to watch Peg negotiate and sign the contract. In the Wednesday night mentoring sessions that we do every week, we’ve covered how to put together a package for exit strategies for a property. This is essential when pulling together funding partners or presenting to investors you may want to wholesale the property to. We’ve covered the importance of consistent marketing and developing relationships with Realtors. I introduced them to my favorite account Joe Craft, CPA and in our most recent session introduced them to John Syron of Aurelian Lending to go over the possibility of using their Unsecured Lines of Credit program. We will be doing a new webinar on this service in May. Stay tuned. I also sent them a property in Dorchester that came across my desk this past week. Not sure if they went to view it, that’s for the next post. For, now….what have Mike and Jacqui been up to over the past week? Update: Evaluating Potential Rehab Deals Since our last post we have been working with local real estate agents to learn more about the market for single family rehab investments. Last weekend, we went out with Matt Heisler, an investor friendly real estate agent who specializes in the central and metro-west markets. Matt understands we are looking at properties from an investment point of view and has been a great resource. With Matt we looked at properties inside the 495 belt, but about 30 minutes away from our target market of Framingham. The first house we saw, the Cat House, was a small 900 sq ft ranch in your average working class neighborhood. We immediately noticed the smell of cat urine and that the house was pretty much a mess. Our hunch is the house is currently rented to tenants and the seller may be motivated due to the extensive deferred maintenance inside and outside of the property. To expand the house, we could potentially add value by finishing the basement and adding a garage. However, we are unsure if the addition of a garage provides a significant enough return on investment to make it worthwhile. Our research suggests you may only get a 1:1 return on the money you invest to build the garage, however you will attract a larger market of potential buyers. Kitchens and bathrooms all need to be gutted and the exterior of the house needs some cleaning up. House has original hardwoods throughout but the current tenants have let their cat wild and don’t seem to care about cleaning up therefore flooring needs to be replaced. We are thinking of offering $160k. Estimated rehab costs: $45-60k depending if we add a garage) Potential sale price: $250-275k. House number two, the Old Folks House, seemed much more promising and we will admit, it was a breath of fresh air walking in. No cat urine! This was a much larger ranch in a quiet hill top neighborhood. Real estate owned property that has been on and off the market for the last year. Needs new kitchen, paint and possibly updating the basement. The basement was finished probably 25-30 years ago and although it is large and bright with a full bath, it is outdated. We would want to refinish the basement, but are concerned about return on investment. The house is located in a beautiful neighborhood, however across the street is a large Victorian that has been converted to a nursing home. Not really an eyesore, but definitely out of place in a neighborhood of single family homes. Is this a deal breaker for buyers? To be on the safe side of the budget we are reducing the estimated after repair value by 5-10%. We are thinking of offering: $200k. Estimated rehab costs: $50k. Potential sale price: $315k. As we move forward we are still refining our investment criteria for a rehab property, however we are current looking for: 3-4 bedrooms with the potential for 2 full bathrooms, hopefully a master bath or space to add one in. If the layout is not ideal, is it easy enough to manipulate? After that we don’t really care what the inside looks like because we will probably be replacing most of it, so the uglier the better. We also look outside and at the curb appeal, is there enough yard? How is the neighborhood? Spy on the neighbors, would you buy a house here? From a numbers perspective we are targeting a minimum of $30k profit and for houses over $300k we are targeting a profit of at least 10% of the purchase price. Stay tuned to hear about any offers we put in and if accepted, how we were able to finance the deal as new investors. In the meantime we are sending out our next batch of direct mail letters. With our last mailing we got one response “Please take me off your mailing list”. Hey, at least we know the letters were read! If you want to get in touch with us please contact us at jacqui@fitzpropery.com or mike@fitzproperty.com.

Diary of a Newbie Real Estate Investor

April 16, 2014 by bostonareia 4 Comments

WE NEED YOUR HELP TO CHOOSE OUR LOGO!

Direct mail and a Website Logo Contest

Jacqui and I are still scouring the market to try and find a good rehab deal, and recently we have been focused on direct mail and our website development. It’s been about two weeks since we sent out our first round of direct mail marketing. No responses to date, but we are optimistic that if we stick with it we will find a good rehab deal. We are continuing to refine and add to our marketing list that we are using for direct mail. Our list was created using the following data sources: expired and removed listings from MLS, foreclosures, and houses that we identified by driving for dollars and looked up in the public record.

To try and keep things organized we are also in the process of setting up our own website. We are working with Thrivehive to design the website and are utilizing the marketing platform. The Thrivehive marketing platform provides you everything that you need to create tracked phone lines and to start building a database of potentials sellers, buyers, or others. We are looking forward to using these capabilities to track the effectiveness of our direct mail marketing.

We were shocked that we actually had our first lead come in a few weeks ago when an absentee landlord found our webpage after extensive google searching and contacted us.

The owner lived on the South Shore and was interested in selling a six family apartment building that he owned in the Framingham area. We checked out the property and initially were not very impressed with the location or the condition of the building so we didn’t investigate or move forward. A week later I called the owner back because a friend of mind provided me with more information about the specific neighborhood the apartment was located in and suggested it might be worth a second look. Go figure when I contacted the owner back the property was already under agreement by another investor. Lesson learned – do your research and move quickly.

We were shocked that such a barebones website could actually generate a credible lead. We are excited about redesigning our site with Thrivehive’s help and will have something available soon that can help us to keep the leads coming!

We are also looking to pick a logo for our company Fitz Property. We have used a logo design website and have narrowed the top designs for you to vote. We would love your input. Also if you think you have a better logo idea, we want your submission! If we select your design as our logo we will offer a $200 prize. Please submit any ideas to mike@fitzproperty.com and jacqui@fitzproperty.com

Thanks for reading!

Mike and Jacqui

What to expect on March 20th at Boston AREIA

March 19, 2014 by bostonareia Leave a Comment

We are having a blast mentoring Mike Fitzpatrick. He’s working with his partner Jacqui Pietrzak, look for their next blog post. They’ve been driving for dollars, working on their website, putting together their first direct mail marketing campaign and presenting potential deals to Peg and I. Super proud of them! I’m watching a power couple develop! WOHOO!

It’s the LAST day to get eligible for this month’s workshop at 5pm. I will be downloading real estate leads from a few lead sources and giving them to the folks who come to the session. I need to know now who is coming at 5pm. If you don’t qualify by midnight tonight, you won’t be able to join us at 5pm before the monthly meeting! Find out if you are eligible!

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Most of you have said that you are interested in saving money on your electric bill and going green. Some of you have switched to Viridian, many of you have not. All of you raise your hand when I ask if you recycle, most of you agree if you had the ability to make 10 times the carbon impact without it costing you, you would. I know time gets away from you and you forget. I get it. We have invited Reps to help you with the 3 minute process it takes to make the switch on Thursday night – BRING YOUR N-Star or National Grid bills with you. It costs you nothing, takes 3 minutes, can save you money over time and you choose green. All who take action will get a special opportunity during our “forced networking” segment.

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Thursday, March 20, 2014 – Is fear of making an offer holding you back?

***Special opportuniy to for MEMBERS of Boston AREIA, we are shaking up our forced networking section…those who get there early will be rewarded!

Monthly Meeting – The question I get most from investors is, “Ok…so, I find a property…how do I make sure all the bases are covering when making an offer and putting together a P&S?” Well this meeting will dispel the fears that are holding you back from making offers! For all details visit – http://bostonareia.com/resources/upcoming-events/

Become a member today – http://bostonareia.com/about-us/membership-plans/

Attention Boston Flippers – 7 Common Small business tax Misperceptions

March 13, 2014 by bostonareia Leave a Comment

Good morning Boston Flippers, I’ve been chatting with CPA, Joe Craft, here’s his advice:

One of the biggest hurdles real estate wholesalers, property flippers in Boston and around the country and really any small business owner will face in running your own business is staying on top of your numerous obligations to federal, state, and local tax agencies. Tax codes seem to be in a constant state of flux making the Internal Revenue Code barely understandable to most people. The old legal saying that “ignorance of the law is no excuse” is perhaps most often applied in tax settings and it is safe to assume that a tax auditor presenting an assessment of additional taxes, penalties, and interest will not look kindly on an “I didn’t know I was required to do that” claim. On the flip side, it is surprising how many small businesses actually overpay their taxes, neglecting to take deductions they’re legally entitled to that can help them lower their tax bill.

Preparing your taxes and strategizing as to how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration, money, and an auditor knocking on your door, is to have a professional accountant handle your taxes. To contact Joe Craft, CPA, who is an expert on real estate taxes for wholesalers, part-time flippers, buy and hold investors and more, email him at Joe@JoeCraftCPA.com, make sure you let him know that Bernadette from Boston AREIA sent you.

Tax professionals have years of experience with tax preparation, religiously attend tax seminars, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code. When it comes to tax planning for small businesses, the complexity of tax law generates a lot of folklore and misinformation that also leads to costly mistakes. With that in mind, here is a look at some of the more common small business tax misperceptions.

1. All Start-Up Costs Are Immediately Deductible

Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business. Examples of these types of costs include advertising, travel, surveys, and training. These start up and organizational costs are generally called capital expenditures. So, when you are learning to flip properties in Boston or wherever, chances are that expensive course that you just bought isn’t deductible. Sorry.

Costs for a particular asset (such as machinery or office equipment) are recovered through depreciation or Section 179 expensing. When you start a business, you can elect to deduct or amortize certain business start-up costs.

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced (but not below zero) by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized.

2. Overpaying The IRS Makes You “Audit Proof”

The IRS doesn’t care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can’t substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to “Audit Proof” yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.

3. Being incorporated enables you to take more deductions.

Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do, and for many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or move the company in a different direction. In addition, plenty of small business owners who incorporate don’t make money for the first few years and find themselves saddled with minimum corporate tax payments and no income. Make sure when you begin your real estate investing, whether it’s wholesaling or flipping properties, you seek out the advice of a tax professional who can guide you in the right direction. My recommendation is Joe Craft, CPA. Joe@JoeCraftCPA.com, and make sure you let him know Bernadette sent you.

4. The home office deduction is a red flag for an audit. Click here to learn why Joe thinks everyone should own a home-based business!

While it used to be a red flag, this is no longer true–as long as you keep excellent records that satisfy IRS requirements. In fact, so many people now have home-based businesses that in 2013, the IRS rolled out the new simplified home office deduction, which makes it even easier to claim the home office deduction (as long as it can be substantiated).

Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction. A high deduction-to-income ratio however, may raise a red flag and lead to an audit. For real estate investors who flip properties part time, owning a separate home based business can actually allow you to take far more deductions than you can by just flipping properties. Home based businesses actually offer over 130 deductions that being a part time flipper does not. Joe Craft believe that everyone, including part time flippers should own a home based business. Click here to learn why and learn the deductions you can take that you can’t take as a wholesaler or flipper. If you are interested in using a home based business to take advantage of those deductions, Viridian Energy, that is a vendor for Boston AREIA is a good option.

5. If you don’t take the home office deduction, business expenses are not deductible.

You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.

6. Requesting an extension on your taxes is an extension to pay taxes.

Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.

7. Part-time business owners cannot set up self-employed pensions.

If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.

A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor.

And, even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If you have any questions, don’t hesitate to contact Joe Craft, CPA. He has numerous years of tax experience, particularly in the field of real estate and home based business ownership. He’s a rock star accountant and is there to help.

How to Set and Achieve Your Goals in Real Estate

August 21, 2013 by bostonareia 2 Comments

How to Set and Achieve Your Goals in Real Estate

Ask yourself two questions. Do you have a Will? And do you have written goals for the next one, three, five and ten years? If you answered yes to the first question but no to the second, you are planning more for your death than your life. I challenge you to start setting some goals but remember if a goal isn’t in writing, it’s simply a conversation. It must be in writing and it must have a deadline. You must also have a commitment to your real estate investing. You can’t expect to do this for a few months and then give up. Make sure you are willing to give it at least 5 years before you walk away. Here are a few guidelines …

Be Specific

Be specific and include details but start rough. This means you want a Mercedes. You don’t have to get into color, options, etc.… just write it down. Make your list huge. Come back and prioritize and determine what you want in one, three, six and twelve months, then three, five, ten and twenty years. The more goals you have, the happier you will be, the longer you will live, and the more prosperous you will be.

Goals Must be Believable

Your goals must be believable or you will not pay the price. They must be just out of your reach, but know you can reach them, if you really strive to do it.

Goals Must be Measurable

Don’t set a goal to be financially independent. You can’t measure that. Break it down to the ridiculous. I have learned that successful people set their goals quickly and make adjustments as they go along. Successful people don’t vacillate in indecision.

Goals Must be Congruent

Goals must be congruent with your actions. You cannot set a goal to work harder, longer hours AND a goal to spend more time with your family. Those are not congruent.

Visualize What You Want

If you see yourself as already having achieved the goal, you will fake out your mind and it sees the goal as having been achieved. It’s called “fake it till you make it”. Take a moment each day and visualize life as it is would be with your goals already accomplished.

Number Your Goals

Number your goals in the order of importance. Not only is the goal important but so is the reason. Sure your want more money, but why do you want money? Whatever it is, the reason must be there. The reason is more important than the goal itself.

Review, Monitor and Make Adjustments

Review, monitor and make adjustments to your goals. You have to be flexible. Some things are not going to happen, you have to face that but you need to continuously strive to get better every day.

Goals Must Have a Deadline

Your goals must have a deadline. A goal without a deadline is just a conversation. Set your goals in these four basic areas:

Financial

Set goals based on income, equity or net worth and cash flow. All of these are financial goals.

Fitness

This is your health. If you don’t feel good, you are not working at your maximum capacity. I want you to set some fitness goals to stay healthy. Start small and don’t try to tackle all of them at.

Family

Set family goals. What is an example of a family goal? Maybe you want to take four vacations a year. Maybe you want to visit a new state, three times a year or five times a year. You get the point.

Friends

Think about the people you associate with. Your ten closest friend’s annual salary and divide by ten…that is pretty close to your income. Who you associate with, is who you are like, so keep that in mind. Don’t get rid of your friends, just get more that are where YOU want to be financially.

Remember, real estate investing is a great way to help you achieve your goals, you have to have desire and commitment. The time for action is now and its never to late to DO SOMETHING!