Converting Your Residence Into Rental Property
Are you prepared for converting your residence into rental property?
Date posted:  March 16th, 2020
As with any business venture, you must know the dangers and rules before jumping right in. You want to avoid any trouble knocking on your door in the future. The same goes for converting your residence into rental property and the tax regulations that go into the process. A critical key to a successful conversion and future is knowing how it all works. The more you know, the better off you will be. Before you start the process, it’s always a good idea to consult with a professional and to discuss every tax-related detail that will occur throughout the process.

Depreciation and Basis

One of the first aspects you’ll need to do is determine the property’s tax basis for depreciation purposes and to calculate gain and loss. Two different basis rules apply that usually prevent you from taking a loss on the sale of a rental house. Under these two rules your tax basis is the lesser of 1) the property’s normal basis on the conversion date and 2) the fair market value on the conversion date. These two basis rules usually prevent you from taking a loss on the sale of a principal residence into rental property conversion.

Landlord Rules

The next step in converting your residence into rental property is knowing and following landlord tax rules. On a rental property, you’ll be able to deduct mortgage interest and real estate taxes. There is also the ability to write off any and all standard operating expenses. These expenses must fall under the rules of owning a rental property such as insurance, repairs, maintenance, utilities, association fees, yard care, etc. With a residential building you can depreciate the property over 27.5 years even when (and if) it’s increasing in overall value.


Conclusion 

To find out more about converting your residence into rental property, contact us today to discuss your options. We can collaborate and find your best options today! 
What To Know About A Tax Deductible Business Trip Expense
You need to be familiar with what is and isn't deemed a tax deductible business trip expense.
Date posted:  November 21st, 2019
It can be tricky trying to figure out what is tax deductible and what isn’t. If you plan a personal trip, there’s no question that you can’t deduct any expenses. The water does get a little murky when you plan a personal trip and conduct a meeting or two with a vendor or prospect while you’re out there. Being able to “kill two birds with one stone” can help your business continue to thrive rather than take a hiatus while you’re on “vacation mode.” How can you know what is considered a deductible business trip expense and what isn’t? 


How To Detect What Is And Isn’t A Deductible Business Trip Expense

A deductible business trip expense is subject to numerous rules that must carefully follow. If you don’t, you run the risk of trouble if you are audited. Though travel expenses are the most common business expense deductions, they are also the most confusing. For an entire trip to be deducted (i.e. flight, lodging, meals, etc.), the primary purpose of the trip must be business. However, you can mix business and little pleasure if you are familiar with the IRS ground rules regarding travel expenses. 

If you are starting a new business or acquiring one, travel expenses in connection with that are not deductible. You can, however, start adding these costs to the startup expenses, elect to deduct a portion, and amortize the rest over a period of 180 months. See how tricky this can be? Your best bet is to consult with a professional regarding your options with any and every potential deductible business trip expense. 


Tips On Travel Expense Management

There are countless tips that we could recommend about travel expenses. One being that in order to be considered a deductible business trip expense, the expense must be necessary, reasonable, and ordinary. Another trip is that you must be “away from home” to be a travel expense. Your travel day can count as business when you travel in a moderately direct route to your destination for business. If your presence is required and requested by someone at a particular event, meeting, or business function; that day can count as a business day. Whoever requested your presence must be business-related. That could be an employee, partner, customer, associate, vendor or client. 


Conclusion 

For example, if you travel on a Friday to meet with a client on Saturday and return on Sunday; your trip is deductible. To find out more about what is or isn’t considered a deductible business trip expense, contact us today to discuss your options. We can collaborate and find your best deductible options today! 
Avoid An IRS Audit Regarding Your Home-Office
Avoid an IRS audit regarding your home-office this year.
Date posted:  November 7th, 2019
Last year, your chances of an IRS audit were at 2.4 percent. That is if you were to file your business income and expenses as a sole proprietor and reported $100,000 or more in gross receipts.

On the other hand, if you had reported this income as an S corporation, those chances were decreased to 0.2 percent. That’s a 90% decrease which is significant enough to grab anyone’s attention. Now, you’ve probably heard about home-office deductions increasing your IRS audit chances. Before you start believing that to be a bullet-proof theory, take it first as a theory.


Suffer From IRS Audit Paranoia?

If you are easily paranoid about audits, you’ll want to claim the home office deduction without attracting the attention and the possibility of an IRS audit, right? Right. Your home-office deduction will not show on your personal return or your corporate return if you’re operating as a corporation and have the corporation reimburse the office as an employee business expense. There are several ways to deduct your home office expenses but this method maximizes the tax savings.

By doing so, the corporation claims the deduction for the expenses that it reimburses to you. This means that your reimbursement falls under a category like “office expenses” or “utilities”, avoiding the words home office deduction appearing on your corporate return. As a reminder, you don’t report employee-expense reimbursements as taxable income on your personal return.

To continue putting your mind at ease, your home-office deduction doesn’t appear under a home-office label as a tax deduction on the personal or corporate tax returns! You can stop suffering from IRS audit paranoia.


Conclusion

As stated previously, the statement of a home office being an IRS audit flag should be considered a theory. However, if you are still concerned and want that home-office deduction, and for other good reasons, you must consider the corporate form of business, which hides the deduction. At NESCO, we can discuss the best options for your choice of entity. Reach out to us and get started on maximizing your profitability today.
Don't Miss Out On The 2019 Residential Solar Tax Credit!
Don't miss out on the 2019 residential solar tax credit!
Date posted:  October 25th, 2019
It has been astounding to watch the popularity of the investment tax credit (ITC) take place over the last several years. The expiration was set for the end of 2007 after it was originally established by the Energy Policy Act of 2005. That clearly did not happen due to its success in supporting our country’s transition to a more renewable energy economy. Hence why Congress expanded its expiration date multiple times over the years. Now, the ITC is available to homeowners, a residential solar tax credit, through 2021.


What Is The Residential Solar Tax?

In December of 2015, Congress approved the 2016 federal spending bill containing a 5-year solar tax credit extension. The overall takeaway from the ITC is that you are allowed to deduct 30% of the cost of your solar energy system installment from your federal taxes. It can be applied to both commercial and residential systems with no cap on its value. This bill makes solar energy more affordable for Americans, especially those that have taken advantage of the residential solar tax.

Due to the ITC, the average shopper could have saved over $5,000 to $9,000 in 2019 for going solar. The cost of solar energy systems have dropped significantly, which has created a more affordable and beneficial transition to the solar way of life. However, now that it is the end of 2019, what happens with your residential solar tax credit?


The Future Of Residential Solar Tax Credit

Since the bill was passed with a 5-year extension to solar tax credit, the end of 2019 may be the last time to reap the benefits of the 30% residential solar tax credit. If you have yet to install your solar energy system on the residence that you own, you may want to consider installing as quickly as possible. You can still receive the 30% residential solar tax credit by installing and having the solar property in use before December 31, 2019.

Come the 2020 tax year, the residential solar credit goes from 30% to 26%. The following tax year of 2021, the percentage drops once again from 26% to 22%. Eventually the residential solar credit will terminate in the tax year of 2022. This is your time (before December 31, 2019) to take advantage of what the ITC has given you.


With questions regarding your commercial or residential solar tax credits, NESCO is here to help. We assist and work on your behalf to find tax planning opportunities that suit your needs. Call us today to find out more about our services!
Reduce Operating Expense, Tax Expense and CO2 Footprint. Increased Profits.
Date posted:  October 25th, 2019
A few examples of projects that were successful for our clients in the past include: 

Reduced family business owners tax burden by $25,000 per year.

Increased non-taxable compensation available from business to owner through a structuring strategy.

Reduced excise tax by $800,000 on sale of power plant by analyzing assets and properly reclassifying assets in the correct categories.

Reduced multi-million dollar canadian income tax burden on sale of canadian assets by U.S. parent company.

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