Tax Returns

[dmd20000]

Hi guys, something came up and I am not sure what to do. I am filing my tax returns as a non married individual so I am paying a lot of taxes. Should I transfer my parent's house to my name that has a 30 year mortgage or buy a mobile home for $21,000 cash? I am not sure which option gives me a higher return at the end of the year. Please help. I also have 100k in loans to pay.

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[lapharmacienne]

I'm interested to hear the suggestions...I'm in a similar situation at the moment

 

[PharmNerdMatt]

Hi guys, something came up and I am not sure what to do. I am filing my tax returns as a non married individual so I am paying a lot of taxes. Should I transfer my parent's house to my name that has a 30 year mortgage or buy a mobile home for $21,000 cash? I am not sure which option gives me a higher return at the end of the year. Please help. I also have 100k in loans to pay.

I would consult a tax professional. It seems unusual to consult a group of strangers (or at least mostly anonymous individuals) with decisions involving so much money.

 

[fauxden]

I was going to try and tell you that transferring the mortgage is not going to save you anything, really... and could cause huge headaches, but then I realized if you are asking these type of questions you really do need a professional for assistance. As far as the mobile home goes... it's not as if owning a home is really going to save you more than it will cost you. In this case the money you will lose on the depreciation of a mobile home will far outweigh any possible tax deduction you could get. Keep in mind a mortgage is not giving you an credit, but acts as a deductio. And if you buy cash, it won't matter - pretty sure only the interest is deductible. And remember, our tax system is progressive. You don't get bumped from one tax bracket to the next. Money is taxed in the category it falls in, scaling upwards.

 

[confettiflyer]

Your two options aren't really going to do jack squat at this point...and you can't just "transfer a mortgage" anyway.

Unless you can open and close escrow in 29 days and pay like 2-3 points on a mortgage origination....yeah no, get ready to get reamed by the IRS.

(I'm assuming you're already maxing out 401k/403b/IRA contributions pre-tax).

 

[confettiflyer]

Oh! You can always start a business right now and buy a bunch of equipment and take a Section 179 depreciation immediately.

But at this point you should probably go find a tax professional...or really for the OP, go watch some Suze Orman marathon or something.

 

[Monsterdaddy]

If you want to lower your taxes, the first step is maximizing your 401(k) or 403(b) contributions of up to $18,000. If you don't know what those are, please Google it and contact your benefits center.

One clarification on mortgage and real estate taxes, you can actually get deductions if you pay someone else's taxes without having to legally transfer them. It's unusually not recommended as it may trigger an audit but for some people paying their parent's mortgage as a "rent" that's one way to earn a deduction (and the parents can no longer claim it.)

But be cautioned that the deductions would have to exceed the single person standard deduction of $6,100 before you gain any benefit (and if it's just over $6,100 the benefit is so marginal as to be not worth it.) So right now you get $6,100 off your taxable income, you would have to take on a large mortgage and real estate taxes, sales/property taxes, etc. to see some tax savings.

Just don't do anything crazy just to lower your taxes. A single person making over $100K doesn't have many options besides the 401(k). Getting married, having kids, buying the big house, those are the usual steps LOL!

 

[Ackj]

The single vs. married thing isn't all it's cracked up to be. Last year I compared my and my girlfriend's tax returns and the estimated joint return, and the potential savings were very underwhelming. And at dual higher incomes, it may actually be worse, because you could end up in a higher bracket together than you would be alone. (For example $130k income for singles is the 28% bracket, yet for married $260k would get the 33% bracket.)

 

[Dred Pirate]

liquid all of your assets and buy gold
then go open a gold mine in alaska - seems to work for those guys

 

[Monsterdaddy]

The single vs. married thing isn't all it's cracked up to be. Last year I compared my and my girlfriend's tax returns and the estimated joint return, and the potential savings were very underwhelming. And at dual higher incomes, it may actually be worse, because you could end up in a higher bracket together than you would be alone. (For example $130k income for singles is the 28% bracket, yet for married $260k would get the 33% bracket.)

Sorry, I should have been more specific. Marry someone who isn't working much (i.e. the one who will be the child caregiver) and you will save on taxes. It's unfortunate that the marriage tax penalty still exists for dual income couples.

 

[confettiflyer]

Sorry, I should have been more specific. Marry someone who isn't working much (i.e. the one who will be the child caregiver) and you will save on taxes. It's unfortunate that the marriage tax penalty still exists for dual income couples.

Lol...I think your legal advice is much better than your matchmaking skills.

 

[pezdispenser]

There isn't that much we can do to reduce taxes. But I don't think taxes are that high. My federal taxes come out to around 18% of AGI. The tax brackets for a RPh salary have been the same (relatively low) since 2003.

Anyway, $17,500 into your 401(k) is a big one, but this is only deferring tax until retirement, not a tax deduction.

You can put $3,300 in a HSA or $2,500 in a FSA for healthcare expenses.

You can deduct moving expenses, but read the conditions.

Usually only for new grads who only work for half of the year so they are below the income limits, they can deduct student loan interest and get the $2,000 Lifetime Learning Credit.

Now the standard deduction which everyone gets is already $6,200. So the following deductions have to add up to more than $6,200 in order for you to receive any benefit.

Medical expenses, not including the HSA or FSA, that exceed 10% of your Adjusted Gross Income.

State income taxes or sales taxes, whichever are higher. State income taxes may be what tips you over the $6,200 threshold to itemize.

Property taxes

Mortgage interest. It's funny that the OP suggested buying a mobile home in cash, because then there wouldn't be any mortgage interest and the property taxes would probably be low as well.

Donations. Can be big for some people.

Work expenses, but only the amount that exceeds 2% of your AGI, so let's say this does not include the first $2,000. This includes travel expenses, CEs, membership fees, licensing fees. It does not include regular commuting expenses.

Make sure your W-4 withholding allowances are set correctly, so that you do not have to wait for a tax refund. For a single person with one job, and no other significant income like interest, dividends or capital gains, the correct number is 2 allowances (for federal taxes). One is for the standard deduction and one is for the $3,950 personal exemption.

Also know that you stop paying the 6.2% Social Security tax once you reach $117,000, which means a few hundred dollars extra in your paychecks near the end of the year, and makes it even better to work some OT.

 

[confettiflyer]

Unfortunately for the OP it's December, so even if they theoretically buy a house this month, close on it, and somehow pay some prorated property tax and mortgage interest...the maximum deductions won't show up until 2015's returns.

My new suggestion is to just close your eyes and come to terms with taxes as a reward to the government for all of your hard work.

 

[confettiflyer]

What's helpful next year is to have a full 1040 and ancillary forms as an excel sheet and update it quarterly with YTD income and withholding/deductions to really hone in on the proper amounts to withhold.

Helpful if you have lots of moving parts, multiple jobs, bonuses, etc... This way you can ramp up or curtail withholding in Q4. This helped me project a tax refund of $150 come April....vs a $6000 tax bill last year.

 

[pezdispenser]

What's helpful next year is to have a full 1040 and ancillary forms as an excel sheet and update it quarterly with YTD income and withholding/deductions to really hone in on the proper amounts to withhold.

Helpful if you have lots of moving parts, multiple jobs, bonuses, etc... This way you can ramp up or curtail withholding in Q4. This helped me project a tax refund of $150 come April....vs a $6000 tax bill last year.

That's pretty much how I do it. I made a spreadsheet listing every paycheck. Already have one for all of 2015. I put in a formula to calculate the taxes automatically, even if I add in OT or change W-4 or 401(k) contributions. Total up the paychecks at the bottom. Then add any other income like interest, dividends, capital gains. Subtract any deductions. Calculate the tax on the final amount. Compare to amount withheld from paychecks to see if you get a refund, or owe. Change your W-4 allowances as necessary.

 

[Monsterdaddy]

Taxes suck.
But why marry someone that has no skills so they cannot work. The amount of $$$ you both bring home together is > than what you pay in taxes.

Lol...I think your legal advice is much better than your matchmaking skills.

OMG, you guys are harsh on potential mates LOL! Being a little presumptive I see. Now, I understand why wouldn't want to support a bum. but um, some people still want to raise a family the traditional way (without the endless daycare bills for substandard care). Spouses still give up careers to do this and the tax code gives them some relief for this.

 

[PharmNerdMatt]

OMG, you guys are harsh on potential mates LOL! Being a little presumptive I see. Now, I understand why wouldn't want to support a bum. but um, some people still want to raise a family the traditional way (without the endless daycare bills for substandard care). Spouses still give up careers to do this and the tax code gives them some relief for this.

Its not a complete relief, but you can deduct child care expenses if it lets someone work. It is going to make a pretty big difference for us given the cost of the private preschool we send our daughter to (which is totally worth it).

 

[ExpressMaiL]

Consult a professional on this, not a forum on the internet. Imagine going to a surfing forum and asking for advice on proper inhaler technique.
Up until now I've been using separate accountants for my personal and business taxes, but I'm looking to merge them. It wouldn't hurt you to be a 10-99 on the side but don't claim that you work from home unless you have a professional assist you with that.

 

[rxglasshalffull]

so i make about $125k this year and bf started working first week of october also as a pharmacist, his yearly salary is also $120k, but hes only making three months of salary this year and paid tuition as he just graduated in may.. we re going to the court and getting married in two weeks. im hoping that should help with the tax refund next apil. we are in california if that makes any difference. we both have no loans or properties or kids.

 

[Momus]

Will hurt next year

Next year, pop a baby or two and buy a property with mortgage.

 

[rxglasshalffull]

Next year, pop a baby or two and buy a property with mortgage.

def not popping out a baby, not that desperate yet lol

 

[ChalupaBatman86]

Next year, pop a baby or two and buy a property with mortgage.

A baby or two in 2015 if not currently pregnant? Do you even math bro?

 

[trailerpark]

Is it worth maxing 401k if your employer wont match until 1 year of service or do something else with that money?

 

[Momus]

A baby or two in 2015 if not currently pregnant? Do you even math bro?

I believe in random probability or people like you will call it luck. Ever heard of twins, bro?

 

[pezdispenser]

Is it worth maxing 401k if your employer wont match until 1 year of service or do something else with that money?

I would do something else with that money, such as:
- paying off student loans
- saving for a down payment on a house
- Roth IRA

Even when you get a match, also consider the vesting schedule and your likelihood of leaving the company before you are fully vested.

 

[confettiflyer]

Is it worth maxing 401k if your employer wont match until 1 year of service or do something else with that money?

If you have a compelling reason to maximally reduce your AGI *and* you can achieve your short term financial goals (saving for a house, emergency fund), then you definitely should.

High income, Childless renters do not have many above the line deductions available and 401k is one of them assuming your employer provides one.

 

[trailerpark]

I would do something else with that money, such as:
- paying off student loans
- saving for a down payment on a house
- Roth IRA

Even when you get a match, also consider the vesting schedule and your likelihood of leaving the company before you are fully vested.

I'll be eligible for 6% company match in July so I think I'll just pay off grad plus loans till then since they're my highest interest rate. My company now makes you fully vested from the get go after 1 year, but I lost 50% of company contributions from my last job when I went to pharmacy school since each year was 25% vested.

 

[pezdispenser]

so i make about $125k this year and bf started working first week of october also as a pharmacist, his yearly salary is also $120k, but hes only making three months of salary this year and paid tuition as he just graduated in may.. we re going to the court and getting married in two weeks. im hoping that should help with the tax refund next apil. we are in california if that makes any difference. we both have no loans or properties or kids.

With new grads who only work part of the year, usually they have way too much tax withheld from their paychecks, so they get a few thousand dollar tax refund. This is because they get taxed as if they earned $120k, but in the end they only made $30k so the tax rate should be much lower. Also, since they were a student for the first half of the year, they can usually claim the $2,000 Lifetime Learning Tax Credit.

The other issue is the so-called "marriage penalty" which is when two people both have incomes over about $85k, then they pay about $450 more tax each, than if they were single. This is because the 28% tax bracket starts at $89,350 for singles, but at $148,850 for married. Half of that is $74,425, so married people start the 28% tax bracket earlier than singles. This will not apply this year because your incomes are not both over $85k. In fact, you will probably pay a couple of thousand less tax if you get married this year.

 

[pezdispenser]

Another thing is on your W-4 Withholding Allowances, there is an option to choose Married. However, it is very important to note that it is sort of assuming that one spouse is not working, or does not earn a significant income. So if you both claim Married, it will give both people the 'doubled-up' married tax brackets and both people the whole $12,400 standard deduction. When you both have large incomes, this will lead to serious under-withholding of taxes, and you will owe a massive tax bill in April. Instead, you should select the "Married, but withhold at higher Single rate" option on your W-4.

 

[confettiflyer]

Another thing is on your W-4 Withholding Allowances, there is an option to choose Married. However, it is very important to note that it is sort of assuming that one spouse is not working, or does not earn a significant income. So if you both claim Married, it will give both people the 'doubled-up' married tax brackets and both people the whole $12,400 standard deduction. When you both have large incomes, this will lead to serious under-withholding of taxes, and you will owe a massive tax bill in April. Instead, you should select the "Married, but withhold at higher Single rate" option on your W-4.

You can always augment with the manual withholding line, but the problem with that is if you have some variability in your paycheck above and beyond your usual play (like bonuses, picking up extra shifts, overtime, etc...), you'll still end up underwithholding.

So the better method is the above, withhold at single. What other people might do is withhold at single but increase the number of exemptions to further tweak withholding.

But really the best method is to track monthly using an excel sheet. I use this guy's sheets, they're a year behind but they're a good approximation:

https://sites.google.com/site/excel1040/

The sheet is free/super useful but he does take donations for it.

 

[rxglasshalffull]

With new grads who only work part of the year, usually they have way too much tax withheld from their paychecks, so they get a few thousand dollar tax refund. This is because they get taxed as if they earned $120k, but in the end they only made $30k so the tax rate should be much lower. Also, since they were a student for the first half of the year, they can usually claim the $2,000 Lifetime Learning Tax Credit.

The other issue is the so-called "marriage penalty" which is when two people both have incomes over about $85k, then they pay about $450 more tax each, than if they were single. This is because the 28% tax bracket starts at $89,350 for singles, but at $148,850 for married. Half of that is $74,425, so married people start the 28% tax bracket earlier than singles. This will not apply this year because your incomes are not both over $85k. In fact, you will probably pay a couple of thousand less tax if you get married this year.

where did you get $148, 850 from? oh no! we both together made over that this year. his income is only like $30k, but i have a full year income because i graduated last year =_=

 

[pezdispenser]

where did you get $148, 850 from? oh no! we both together made over that this year. his income is only like $30k, but i have a full year income because i graduated last year =_=

$148,850 is where the 28% tax bracket starts for married people. But don't worry about exceeding that in combined income, because that's not what the marriage penalty is about. It only applies when you have fairly similar incomes over $85k each. This year, because you are so lopsided, it actually flips around and you pay less taxes than if you were single, so it is a marriage bonus.

Here's an article: http://money.usnews.com/money/blogs...w-much-the-marriage-tax-penalty-will-cost-you

And here's a calculator: http://taxpolicycenter.org/taxfacts/marriagepenaltycalculator.cfm

I also noticed that there is another step to the marriage penalty. When married people each have incomes over about $125k they start the 33% tax bracket, but if single, they would still be in the 28% bracket. So when married, you are paying 5% more tax over $125k. Plus there's the extra 0.9% Additional Medicare Tax for combined salaries over $250k. Because two RPhs are right around this threshold, you should seriously consider reducing your income through 401(k) and deductions.

 

[rxglasshalffull]

$148,850 is where the 28% tax bracket starts for married people. But don't worry about exceeding that in combined income, because that's not what the marriage penalty is about. It only applies when you have fairly similar incomes over $85k each. This year, because you are so lopsided, it actually flips around and you pay less taxes than if you were single, so it is a marriage bonus.

Here's an article: http://money.usnews.com/money/blogs...w-much-the-marriage-tax-penalty-will-cost-you

And here's a calculator: http://taxpolicycenter.org/taxfacts/marriagepenaltycalculator.cfm

I also noticed that there is another step to the marriage penalty. When married people each have incomes over about $125k they start the 33% tax bracket, but if single, they would still be in the 28% bracket. So when married, you are paying 5% more tax over $125k. Plus there's the extra 0.9% Additional Medicare Tax for combined salaries over $250k. Because two RPhs are right around this threshold, you should seriously consider reducing your income through 401(k) and deductions.

so from what im reading, we get more tax return if we are married. ill have made 125k this year and SO 30k? even tho combined we are over $148k

 

[Monsterdaddy]

$148K is taxable income, it is not gross income - don't confuse the two. As a married couple you get the $12.6K standard deduction and another $8K? personal deduction so over $20K off gross income right off the bat. Then you can also choose to take 401(k) and deductible IRAs. Your medical premiums are also taken pretax off your income.

So in 2014, if you get married, you as a couple will save in taxes. Next year with 2 full incomes you will be worse off.

 

[pezdispenser]

so from what im reading, we get more tax return if we are married. ill have made 125k this year and SO 30k? even tho combined we are over $148k

Yes. And Monsterdaddy is right. You do get to subtract the standard deduction and two personal exemptions totaling $20k right off the bat.

 

[rxglasshalffull]

Yes. And Monsterdaddy is right. You do get to subtract the standard deduction and two personal exemptions totaling $20k right off the bat.

i hope the refund is at least somewhat decent.

 

[Muse600]

so now way of opening an LLC, real estate license, other business, etc. and writing off those expenses to lower your taxable income?

 

[pezdispenser]

so now way of opening an LLC, real estate license, other business, etc. and writing off those expenses to lower your taxable income?

I never really got this concept. Aren't you spending money on unnecessary things like the real estate license, just to reduce your taxes by 28% of what you spent? So you would be better off not spending that money in the first place.

Plus the IRS is not stupid. If you continually run a business at a loss they will come and audit you to see if you are actually running a legitimate business. Then they will also find any deductions you made that are personal or not related to your business at all, and disallow them.

 

[confettiflyer]

I never really got this concept. Aren't you spending money on unnecessary things like the real estate license, just to reduce your taxes by 28% of what you spent? So you would be better off not spending that money in the first place.

Plus the IRS is not stupid. If you continually run a business at a loss they will come and audit you to see if you are actually running a legitimate business. Then they will also find any deductions you made that are personal or not related to your business at all, and disallow them.

I'll write more later...but you just have to smart about it.

 

[confettiflyer]

I never really got this concept. Aren't you spending money on unnecessary things like the real estate license, just to reduce your taxes by 28% of what you spent? So you would be better off not spending that money in the first place.

Plus the IRS is not stupid. If you continually run a business at a loss they will come and audit you to see if you are actually running a legitimate business. Then they will also find any deductions you made that are personal or not related to your business at all, and disallow them.

So my follow up to this is here:

1) It only makes sense if you start a business that actually has the potential to earn you money AND the depreciation/write-offs you take are for items that you were likely going to purchase anyway (more on this later).

2) The "rule" is 3 out of 5 which has been debated here previously, in terms of profitable vs. unprofitable years. Face it, most businesses are unprofitable for the first few years, the IRS knows this. I put rule in quotations because it's not like year 4 of unprofitability, the IRS shows up to your door and disallows all of your deductions. My example was Virgin America which has lost money in consecutive quarters from 2007-2013. Which leads me to...

3) You do not need to establish an LLC or S-Corp in order to capture some of that deduction cheese I'll talk about. The only reason you would do this is to shield personal assets from liability claims against your business. Specific to California is the $800 fee that's really a sunk cost and keeps people from incorporating for the hell of it.

4) In terms of deductions, if you want to start a tractor business as your side-business but you live in Los Angeles and have never stepped foot on a farm...stop. If you're a geek who likes tinkering and buys the fanciest of fancy computers/gadgets.... starting a consulting/tech support/web design company might be a better plan, especially if you were due to upgrade all of your regular equipment anyway. Budding photographer? Start a photography business. Crazy about calligraphy? Go for it.

Items purchased for a business are deductible, though the requirement is that they are primarily used for the business. This rule is more or less unenforceable (is the IRS really going to log on to your business laptop and ask to see your browsing history?) My accountant advises me to be aggressive in what I consider a deduction because a) audits aren't really that bad and b) over time, unless you're full on committing intentional tax fraud, the value of those deductions will exceed the costs and penalties associated with an audit (most audits are just requests for information/documentation anyway....via US mail).

She says as long as I don't try to pass off a luxury boat as a business expense, I'll be fine (actual client did that for their RE business... deduction was disallowed at audit).

5) There's really no way for the IRS to differentiate someone who starts a business with the intent of failing vs. someone who just really sucks at their business. They can't read your mind. Just don't be egregious about it (boat example).

6) If you follow these general guidelines, a side-business is a great way to a) have additional income potential and b) a source of legal tax deductions in its formative years. Just be sure to CYA with appropriate licenses, local permits, and reporting of sales tax to your respective tax board. You can even massage your business to be profitable in enough years just to keep the deductions rolling (see my comment in #5 above).

 

[Muse600]

@ Pezdispenser - what I was suggesting is what confetti outlined...

I considered real estate, but it looks like a wash to me...I talked to an agent and he totaled all the fees for me - roughly $6,000/year. Instead I am thinking about getting a CA motorcycle dealership license for ~$717/year...I have about 4 dirt bikes I'm going to sell next year, and they carry expenses for maintenance/repair before they go up for sale.

let's my monthly expenses are as follows:
total income: ~6,500
fixed/obligatory expenses: ~$1,800 (rent, student loan payment) + $80 (utilities) + $250 (food) + $150 (gas) - $650 (church tithing)

I can spend between $100-$800/month on motorcycle parts/gate fees @ track/gas to move dirtbikes/tires/fresh fluids/tools.

so I figure - if I'm *already* spending that much on bikes, why not get a dealership license and I can start writing it off?

I believe in CA - I need to get a dealer license for buying/selling more than 5 bikes/year anyways

I also use my phone/home internet/computer expenses and sometimes I'll go as far as Vegas to pick up or sell a unique type of bike...I'd guess that 20% of my phone usage/internet bill and the gas to Vegas would all be directly related to running my business...and I will likely turn a profit in the first year no problem

@ confetti flyer - does that plan sort of make sense?

 

[Ackj]

@ Pezdispenser - what I was suggesting is what confetti outlined...

I considered real estate, but it looks like a wash to me...I talked to an agent and he totaled all the fees for me - roughly $6,000/year. Instead I am thinking about getting a CA motorcycle dealership license for ~$717/year...I have about 4 dirt bikes I'm going to sell next year, and they carry expenses for maintenance/repair before they go up for sale.

let's my monthly expenses are as follows:
total income: ~6,500
fixed/obligatory expenses: ~$1,800 (rent, student loan payment) + $80 (utilities) + $250 (food) + $150 (gas) - $650 (church tithing)

I can spend between $100-$800/month on motorcycle parts/gate fees @ track/gas to move dirtbikes/tires/fresh fluids/tools.

so I figure - if I'm *already* spending that much on bikes, why not get a dealership license and I can start writing it off?

I believe in CA - I need to get a dealer license for buying/selling more than 5 bikes/year anyways

I also use my phone/home internet/computer expenses and sometimes I'll go as far as Vegas to pick up or sell a unique type of bike...I'd guess that 20% of my phone usage/internet bill and the gas to Vegas would all be directly related to running my business...and I will likely turn a profit in the first year no problem

@ confetti flyer - does that plan sort of make sense?

I don't know the details of it all, but I know a guy who collected antique cars and registered himself as a dealer so he wouldn't have to get them all registered and inspected. The short of it was he could just slap a dealer plate on whatever he wanted to drive that day and it was alright. No idea if he did anything relating to tax writeoffs, but I'm sure he could've done that too.

 

[confettiflyer]

@ Pezdispenser - what I was suggesting is what confetti outlined...

I considered real estate, but it looks like a wash to me...I talked to an agent and he totaled all the fees for me - roughly $6,000/year. Instead I am thinking about getting a CA motorcycle dealership license for ~$717/year...I have about 4 dirt bikes I'm going to sell next year, and they carry expenses for maintenance/repair before they go up for sale.

let's my monthly expenses are as follows:
total income: ~6,500
fixed/obligatory expenses: ~$1,800 (rent, student loan payment) + $80 (utilities) + $250 (food) + $150 (gas) - $650 (church tithing)

I can spend between $100-$800/month on motorcycle parts/gate fees @ track/gas to move dirtbikes/tires/fresh fluids/tools.

so I figure - if I'm *already* spending that much on bikes, why not get a dealership license and I can start writing it off?

I believe in CA - I need to get a dealer license for buying/selling more than 5 bikes/year anyways

I also use my phone/home internet/computer expenses and sometimes I'll go as far as Vegas to pick up or sell a unique type of bike...I'd guess that 20% of my phone usage/internet bill and the gas to Vegas would all be directly related to running my business...and I will likely turn a profit in the first year no problem

@ confetti flyer - does that plan sort of make sense?

$6000 for RE? What the heck. In California, the RE broker license + exam is $400 to apply, then $300 a year to renew. Maybe you spend $300 on the self-study course, but technically speaking you can start functioning as an agent for < $750 your first year.

Maybe your friend is a "REALTOR(tm)" (they like spelling it like that with the trademark sign and everything), and they're talking about MLS access fees and all that stuff? Sure, if you're super serious about starting up an RE firm, do that, but if we're talking super-hobby with deductions and you're looking to maybe have one client every 2 years or so, nowhere near $6000 to start-up.


EDIT: I just checked, access to MLS isn't even that expensive. BAREIS up in nor-cal is like $300 initial + $114/quarter; TheMLS for so-cal is like $300 application fee (probably the same quarterly fee). Throw in business licenses, DBA (if applicable), E&O insurance, hell LLC franchise fee in Calif. if you go that route and grand total to start a one-man real estate band with all the bells and whistles = $3000 ($800 of that is the LLC fee).

I guess if you lease a car for like $250/mo = $3000/yr, that's what your friend is getting at. But no no no no no....that's a gross overestimation for the basement-based shady RE broker shop we're talking about here.

 

[confettiflyer]

so I figure - if I'm *already* spending that much on bikes, why not get a dealership license and I can start writing it off?

I believe in CA - I need to get a dealer license for buying/selling more than 5 bikes/year anyways

Question 1) Are you currently reporting your profits for this side hobby to the IRS & state?

Question 2) Are you "profitable" on a year to year basis with this hobby?

This is the conundrum of starting a business with the quiet intent of creating a tax deduction. If your business is profitable, great...but now you've just added more income to your 1040 at the end of the year. Normally this is a good thing, but here's the kicker, if you do all of this under the table currently, do not report income and deal with cash, and are not subject to obtaining a dealer license...you're better off keeping this all off book and under the regulatory radar.

It's easy for you because you can easily show that you have no profit motive because you do these activities because they are fun.

Sure, you can start writing off expenses, but you sure as hell have to report the income that comes in. I suppose if you deal with all cash, you can declare a business, report expenses, and underreport income...but this is tax fraud, and is actually beyond what I'd be willing to do as an aggressive tax deduction finder myself.

The most helpful for us pharmacists with high income are businesses that are established with provable profit-motive that incur substantial losses in some years with moderate profits in other years.

Makes sense? Just from reading your post and your previous posts, I would say keep this hobby off book and stay under 5 bikes a year.

 

[confettiflyer]

And for everyone else, don't forget to file Form 5213 within 3 years of your first schedule C which requires the IRS to wait a full 5 years before making a determination if your business is indeed a legitimate one.

Presumption of profit motive occurs with 3 years profitability out of 5.

Also a disclaimer, failure to report hobby income is technically tax fraud. But let's get real here, if there are no records and transactions occur in cash, you figure out how an unknowable fact becomes knowable.

Further disclaimer: I'm not a tax professional, attorney, or accountant. I just like to read ****.

 

[Muse600]

yup, all makes sense

The most helpful for us pharmacists with high income are businesses that are established with provable profit-motive that incur substantial losses in some years with moderate profits in other years.

what are some examples of this?

I have a couple friends who's family own businesses (motels, convenience stores, etc.) and they are able to do the write offs....but I would lose waaaaay more (and possibly even fail) to open one of those businesses on the side while also working as a pharmacist

oh well...seems like buying a rental property is the best way...

and yes - I confused realtor with real estate license...and this is what a friend outlined for me:
-CA RE license: $250 q4 years - ~$62.50/year
-being a realtor (required by most brokerages) = $800-$900/year - MLS access/CAR forms
-Supra Key - $175/year
-E & O insurance - $1,500/year (can vary)
-open house signs: $250-$1,000
-brokerage fees (desk fees, printing fees, etc. can vary)
-website - $75/month
-----------------------------
I was wrong - you're right, it's closer to $3,000/year to be a realtor

 

[confettiflyer]

yup, all makes sense



what are some examples of this?

I have a couple friends who's family own businesses (motels, convenience stores, etc.) and they are able to do the write offs....but I would lose waaaaay more (and possibly even fail) to open one of those businesses on the side while also working as a pharmacist

oh well...seems like buying a rental property is the best way...

What other hobbies do you have? I've been trying to figure out how to parlay the bike business into something that's beneficial from a tax perspective. Can't seem to figure it out.

Really if this business exercise requires you to buy/exist in an area you're not familiar or comfortable, you'll end up losing more money than you gain from tax savings.

Managing a rental property and income doesn't require a full separate business...there's a form you fill out detailing your rental income and associated expenses when you do your taxes.

To my knowledge, you can't deduct rental property expenses against your personal income...only against the rental income itself. Anything more, i wanna say it's a passive loss carry over into next year.

Okay I'm pretty sure I botched that last paragraph...someone with a better functioning brain please help me out.[/QUOTE]

 

[confettiflyer]

oh for f*ck sakes, guess what *******ery I just uncovered today....

I realized I was coming up with the WRONG income on my 1040 excel spreadsheet. I somehow managed to put in absolute GROSS pay into the running "box 1" income and forgetting to subtract above-the-line deductions...I only caught this now because I asked myself, "wait, why is my box 5 income greater than box 1? AWWW F+#&$@#@."

So....I have a $6500 REFUND coming my way sometime in march once all my W-2's and 1099's are finalized.*

AGHHHHHHH. I guess it beats a $6000 tax bill like last year, and not like I was going to invest it or anything (already maxed out everything)...but damn it.

*There's an SS tax overpayment built into there because of multiple employers that I was already accounting for.

EDIT: OH AND GREAT. I'm over the $17,500 limit by like $200, now I have to go make some phone calls to get that **** refunded.


#&^@&(#@(*^

 

[Momus]

oh for f*ck sakes, guess what *******ery I just uncovered today....

I realized I was coming up with the WRONG income on my 1040 excel spreadsheet. I somehow managed to put in absolute GROSS pay into the running "box 1" income and forgetting to subtract above-the-line deductions...I only caught this now because I asked myself, "wait, why is my box 5 income greater than box 1? AWWW F+#&$@#@."

So....I have a $6500 REFUND coming my way sometime in march once all my W-2's and 1099's are finalized.*

AGHHHHHHH. I guess it beats a $6000 tax bill like last year, and not like I was going to invest it or anything (already maxed out everything)...but damn it.

*There's an SS tax overpayment built into there because of multiple employers that I was already accounting for.

EDIT: OH AND GREAT. I'm over the $17,500 limit by like $200, now I have to go make some phone calls to get that **** refunded.


#&^@&(#@(*^

I effup too, double pay my property tax. I already set up escrow when I closed. I got the tax bill and proceed to pay first and second installment immediately. I realized when I get my mortgage statement escrow sending 1st installment to the gov... Ummm. What did I just do -_-;! $6500 back to me for sure since escrow check will bounce... At least I am $6500 richer >_>; Good to know my mortgage is only $1900/mo (PITI) instead of $2400/mo for 30 years. Tenant pays $2850 so it's all good. Nothing beats knowing it's $1000 extra income a month to my pocket on top of tenant paying my mortgage principal ($700/mo). Basically, an extra $20k/year gain (1700X12) from becoming an accidental landlord.

 

[confettiflyer]

At some point I revamped my process and messed up the equation I put in place. Oh well.