Month: July 2024

I understand that you are considering offering your timeshare to your employees as an incentive for achieving specific revenue goals and are interested in how you can create a business tax-deductible treatment for the timeshare. Below, I outline two potential methods to help you achieve the desired tax deductions for your timeshare.

Method 1: Deductible Entertainment Facility

One option is to qualify your timeshare as a tax-deductible employee entertainment facility. This approach provides a significant tax-free advantage to your employees, as using such a facility is a tax-free fringe benefit. Here’s how.

Primary use by employees generally. Your timeshare must primarily benefit your employees generally. The “employees generally” group excludes 10-percent-or-more owners and highly compensated employees (those earning over $155,000 in 2024). 

Use ratio. The “employees generally” group must use the timeshare more frequently than the owners and highly compensated employees.

Non-discriminatory use. The timeshare should be made available to all employees generally on a first-come, first-served basis. Avoid any form of discrimination in access to the timeshare.

Proof of use. Maintain a guest log or similar documentation to record employee use.

Method 2: Timeshare as Compensation

Alternatively, you can treat the use of the timeshare as “compensation” to your employees. This method allows more flexibility, including the ability to discriminate among employees if desired. Here’s how it works.

Taxable compensation. You include the fair market value of the timeshare stay (and any additional perks) in the employee’s W-2 taxable income.

Deductible costs. You may deduct the costs incurred in providing the benefit, such as depreciation, Section 179 expensing for furniture and appliances, lease payments (if applicable), and operating expenses.

Business Tax Deduction

Regardless of the method chosen, you need to follow specific steps to ensure you have the deduction correct on your business tax return.

Proprietorship (Form 1040, Schedule C). If you own the timeshare personally, deduct timeshare expenses directly on Schedule C. 

Corporation. If you operate as a corporation, submit an expense report for reimbursement to ensure that the corporation receives the deduction and that you avoid taxable income.

If you want to discuss your timeshare, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 29, 2024

Were you self-employed during 2021? If so, there is a good chance that you could have qualified for COVID-19 sick and family leave credits worth as much as $32,220.

If you’re like many self-employed individuals or partners, you probably never heard about these tax credits. Unlike employee retention credit for employers, the special temporary credits for the self-employed received relatively little publicity. Many tax professionals were unaware of them. As a result, many self-employed individuals and partners never applied for them.

You qualified for the credits if you could not work or telework for various COVID-related reasons—for example, if you suffered from COVID-19; were under quarantine; underwent COVID testing; or looked after a friend, roommate, or family member impacted by the virus.

There are four separate credits:

1. Credit for Sick Leave—January 1, 2021, through March 31, 2021
2. Credit for Family Leave—January 1, 2021, through March 31, 2021
3. Credit for Sick Leave—April 1, 2021, through September 30, 2021
4. Credit for Family Leave—April 1, 2021, through September 30, 2021

The COVID-related sick leave credit was for up to 10 days from January 1, 2021, through March 31, 2021, plus an additional 10 days from April 1, 2021, through September 30, 2021. The maximum credit was $511 ($200 per day if you cared for others).

The COVID-related family leave credit was capped at $200 per day. Up to 50 days of credits were available from January 1, 2021, through March 31, 2021, plus an additional 60 days from April 1, 2021, through September 30, 2021. From January 1, 2021, through March 31, 2021, the credit was available only if you needed to care for a child whose school was closed or whose caregiver was unavailable because of COVID. From April 1, 2021, through September 30, 2021, lawmakers greatly expanded eligibility to include caring for roommates, friends, and relatives.

You were supposed to claim the credits on your 2021 tax return. But if you overlooked the credits, don’t worry. You can still claim them by amending your 2021 tax return. You need to file a completed 2021 IRS Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, along with Form 1040-X.

To determine your eligible sick and family leave days, you’ll likely have to consult your calendar for 2021, emails, vaccination or other medical records, school records, or other records showing the days you could not work for COVID-related reasons. 

You don’t need to file any documentation with your amended return. Just keep it with your tax records. 

You must file your amended return within three years (including extensions). The deadline is April 18, 2025, or if you filed for an extension, up to October 15, 2025. But why wait? Amend your 2021 tax return today, and you’ll get your money as soon as possible.

If you have questions about the credits, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 22, 2024

Real estate options and leases with purchase options can enhance your real estate investment profits. Here’s a concise guide to help you navigate the potential pitfalls and maximize your returns.

Stand-Alone Purchase Option

A stand-alone purchase option can be highly profitable. Here’s how it works:

• Immediate cash. You receive cash up front from a buyer wanting the option to purchase your property at a set price within a specific period.
• Outcome benefits. If the buyer exercises the option, you sell the property at a premium. If the option lapses, you keep the property and the option payment.

Lease with Option to Buy

This approach offers several financial advantages:

• Higher rent. Charge a premium rent, possibly applying a portion toward the option price.
• Up-front cash. Require an up-front option payment, which becomes your immediate cash.
• Property maintenance. Tenants are more likely to maintain the property well, often handling repairs themselves.
• Long-term tenants. Tenants planning to buy tend to take better care of the property.

Legal and Tax Considerations

Understanding the tax implications is vital:

• Option proceeds. If the buyer exercises the option, the up-front payment is part of the sale proceeds. If the option lapses, it’s ordinary income.
• Example. If Mary pays $10,000 for an option to buy your property for $300,000 within 15 months, she adds the option cost to her property basis if she buys. If she doesn’t buy, the option lapses, resulting in a long-term capital loss for Mary and ordinary income for you.

Avoiding Pitfalls

Options and leases can sometimes be deemed sales contracts by the IRS, especially if

• the option forces the tenant to buy due to high rents, or
• the lease conveys significant ownership benefits to the tenant.

Eight Rules of Thumb

To ensure your lease-with-purchase-option is compliant and beneficial, be sure to follow this advice:

1. No equity build-up. Don’t apply rent toward equity.
2. No automatic title transfer. Avoid clauses that transfer ownership after a specific number of payments.
3. Short-term rent proportion. When renting for a short period, ensure rents are not an inordinately large portion of the total price.
4. Fair market rents. Ensure rents are reasonable and not excessively high.
5. No interest equivalents. Avoid building interest equivalents into rents.
6. Proper investment. Maintain at least a 20 percent investment in the property.
7. Fair option prices. Set option exercise prices at or above fair market value.
8. Restrict improvements. Prohibit tenant improvements.

If you want to discuss real estate options, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 15, 2024