Tax

If you buy a property, fix it up, and then sell it, is that property a dealer or an investor property?

Here are five thoughts on this:

1. Periodically buying property, fixing it up, and selling it makes it look like dealer property. But when you seldom do this, the property can look like investor property.
2. If you hold the property for more than a year from the time of purchase to the close of escrow, investor status gives you tax-favored, long-term capital gains treatment.
3. When you buy and sell without fixing up the property, or when you buy and rent and then sell, you have strong investor attributes.
4. The fix-up, remodel, development, etc., give you dealer attributes.
5. The whole issue of dealer versus investor status is a facts-and-circumstances classification, and it’s a tough call.

If you are planning on buying investment property and have tax questions, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 22, 2021

Here’s a sad story of a dentist who did not file his tax returns. 

Of course, as you know, the failure to file tax returns often gets the IRS’s attention. In this case, it did, and this dentist suffered accordingly.

The IRS used the 1099s issued to this dentist by insurance companies and some of the insurance company checks he cashed to identify $43,886 in taxes due, a $10,072 penalty for failure to file, and a $1,754 penalty for failure to pay estimated taxes.

What made this dentist think the IRS would not notice his missing tax return? If he read any newspapers or even watched any television, he had to know that

• the 1099s report his income; 
• the IRS matches the 1099s to tax returns; and 
• missing 1099s get the attention of the IRS audit process.

It’s true. When you don’t file a tax return, you increase your chances of an IRS audit.

If you are having trouble getting your tax information together to complete your return, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 18, 2021

It’s hard to imagine that a small business does not qualify for some or all of the employee retention credit (ERC). 

And remember, this is a tax credit—one of the very best things that tax law has to offer. True, it’s not as valuable as some other tax credits, because you have to reduce your payroll income tax deductions for the credits, but the ERC certainly puts you money ahead.

And you can be looking at big bucks. The possible ERC is $5,000 per employee for 2020 and $28,000 per employee for 2021. That’s $33,000 per employee.

For 2020, you have two ways to qualify:

1. You had a gross receipts drop during a calendar quarter of more than 50 percent when compared to the same calendar quarter of 2019. The 50 percent test is the trigger for the ERC and you automatically qualify in the following 2020 quarter.
2. You suffered from a federal, state, or local government order that fully or partially suspended your operations.

For 2021, you have three ways to qualify:

1. You suffered a federal, state, or local government order that fully or partially suspended your operations (under this rule, you qualify for the ERC on the days you suffered the full or partial suspension, even if you did not lose any money).
2. Your gross receipts for a 2021 calendar quarter are less than 80 percent of gross receipts from the same quarter in calendar year 2019.
3. As an alternative to number 2 above, using the preceding quarter to your 2021 calendar quarter, your gross receipts are less than the comparable quarter in 2019.

You can see by the rules that the government wants to help your small business. Take advantage.

One final note. You may not double dip. Wages you use for the ERC may not be used for the PPP, family leave credit, or similar COVID-19 programs.

If you would like to discuss the ERC, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 14, 2021