REI WEALTH MONTHLY Issue 31 - Page 28

TOP 5 MISTAKES THAT MAY BE COSTING YOU MONEY AMANDA HAN & MATTHEW MACFARLAND We reviewed Carol’s prior year tax return to find out that her CPA incorrectly prepared her individual tax return showing her to be a passive investor in the partnership rather than as an active business owner. Because of this error, Carol left $30,000 of tax write-offs on the table! Fortunately for Carol, we were able to simply check a box in the tax return for her to claim that $30,000 tax write-off. So if you are a business owner or someone who receives a K-1 from any of your businesses or investments, make sure you speak to your tax preparer to ensure you are not erroneously being limited on your tax writeIf you invest in real estate, make sure you speak to offs by the passive loss limitation rules. your tax preparer to ensure that are claiming real estate professional correctly and that any Mistake #4: Missing Carryforward Tax Benefits appropriate election is in place before you send off your tax returns. On average, the tax savings There are a lot of things on our tax returns that between a real estate professional and someone move with us from year-to-year, better known as who is not a real estate professional is anywhere “carryforwards.” For example, if you have had between $5,000 or more each and every year. certain types of ta x deductions, losses, or credits that you were not able to use in the past for any Mistake #3: Limited by Passive Loss Rules reason, these generally get “carried forward” to your future tax returns, from one year to the next. This next example is a common situation that we see time and time again. One of our clients, Carol, is a retired teacher that operates a home-based health food business with her friend Joyce. Based on the suggestion of her advisor, Carol and Joyce correctly formed a partnership to jointly run the business. As with many businesses, not every year was a not a profitable year. For Carol and Joyce’s business, it was especially bad the first year and they suffered losses of around $30,000. After meeting with their tax preparer, Carol was shocked to learn that after losing so much money, she still owed taxes to the IRS. Carryforward tax benefits being lost between the years is yet another common mistake we see in reviewing client’s prior year’s tax returns.