Real Estate Investing Basics

What Investors Need to Do NOW Through March 15th for the 2016 Tax Year

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Are you ready for tax season? Well, ready or not, here it is. There are less than 100 days until tax day, and there’s still a lot to do before then. Let’s take a look at things you should be doing this month, next month, and all the way through tax day to make sure your returns are as accurate and complete as possible:

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What to Do Today

If your tax preparer suggested that you pay a 4th Quarter estimated tax for the 2016 year, then that is due ASAP. Send it in as soon as possible to make sure that you aren’t hit with penalties at tax time.

This week, you should also be reviewing your financials. If you have a bookkeeper, be sure to meet with them to go over the details of 2016. Make sure that your numbers make sense prior to giving them to your tax preparer to avoid potential rework fees.

  • Does your overall profit or loss make sense?
  • Does your rental income seem correct for each property?
  • Have you included all of your general and administrative expenses?
  • Have all repairs and improvements been accounted for?

If you are having someone prepare your returns, contact them now to make sure that you are on their list for 2016, especially if you are using a CPA for the first time or changing to a new preparer this year. Make sure that you are on their radar for 2016 preparation, so you aren’t scrambling to find someone to do your returns in March.



Related: 7 Myths About the Real Estate Professional Tax Status, Debunked

What to Do by January 31st

This is the due date for filing W-2s and 1099s with the IRS. If you had employees in 2016, then make sure W-2s are issued by January 31st to you, your employee, and the IRS. If you paid more than $600 to any contractors that are not “corporations” during 2016, make sure they also receive a 1099-MISC by January 31st. These forms can generally be found at your local office supply store.

By the end of January, you should start to receive your tax documents. Ask your tax preparer ahead of time for a tax organizer or checklist of items needed. Also, you will want to obtain instructions on how to send your documents, as every tax firm has a slightly different method for preparing returns. It may be helpful to make a list of all of the documents you expect to receive and mark them off as you receive them: W-2 from your employer, 1099-INT for interest income from the bank, a 1099-R for an IRA distributions, 1099s from your management company.

What to Do by March 15th

This is the entity tax return due date! A big change for 2016 year is that LLCs and other partnerships must now file by March 15th! In the past, we had an additional month to file, but now, in an effort to push investors to get K-1s out to partners faster, all S Corporation and Partnership returns are due by March 15th. This new, accelerated deadline is important for those investors who file partnership returns for their rentals and also for those active investors who may operate in S Corporations.

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Related: Tax-Saving Strategies for Real Estate Investors: How to Pay Less & Keep More This Year

For those of you who are syndicators, you do not want angry investors calling, so make sure to distribute your company’s K-1s out to your investors as soon as possible following entity filing. There is only one month between entity filing and personal filing, so make sure that your investors have everything they need prior to the date they need to file.

If you can’t get your returns and K-1s completed by this date, then you should request an extension of time to file until September 15th. Just remember that payment may still be due by March 15th for any necessary state tax returns. As such, even if you don’t file until September, do ask your tax preparer ahead of time if they can calculate state taxes due for your entity to avoid penalties later in the year. Filing and payment penalties CANNOT be claimed as business expenses so plan ahead to ensure that you avoid those.

[For more strategic tips on proactively reducing your tax bill as a real estate investor, be sure to check out Amanda Han’s The Book on Tax Strategies for the Savvy Real Estate Investor.]

What steps are you taking in the next few months to prepare for tax time?

Let me know your questions and comments below!

Amanda is a CPA specializing in tax strategies for real estate, self-directed investing, and individual tax planning with over 18 years’ experience. She is also a real estate investor of over 10 ye...
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    Mark S. Rental Property Investor from Kentucky
    Replied over 3 years ago
    What about newly formed (in 2016) single-member LLCs that are treated as a disregarded entity for tax purposes that you have startup expenses for (attorney fees, bank check fees, etc.) but no other income yet?
    Rob Witt from Indianola, Iowa
    Replied over 3 years ago
    I think where it says what to do by march 15th” she says LLC’s but goes on to talk about partnerships and S corps. I would check with your CPA, however looks like if it’s just you then you are probably fine. I looked at that again too. Good luck mark
    Amanda Han Accountant from Fullerton, CA
    Replied over 3 years ago
    Mark, start up costs may need to be capitalized once business begins.
    Don Spafford Investor from Idaho Falls, ID
    Replied over 3 years ago
    I have the same question, I am in the exact same situation and am a little concerned. I usually get my taxes done by that date anyway, but would still be good to know the answer.
    David C. Investor from Hillsboro, Oregon
    Replied over 3 years ago
    Thanks for the article and reminders. If I’m not mistaken if your fixing up property for rent you don’t have to 1099 the workers.
    Amanda Han Accountant from Fullerton, CA
    Replied over 3 years ago
    David you should be issuing 1099s to anyone that you pay over $600 to during the year. C Corporations are generally exempt.
    Amanda Han Accountant from Fullerton, CA
    Replied over 3 years ago
    This is an area that is not particularly clear in the tax world as there appears to be comments from the IRS that landlords do not need to issue 1099 although on Schedule E of the taxes the IRS Specifically asks if 1099s are issued. To protect the landlords we generally recommend issuing 1099s to the necessary payees.
    Bharath Sundararaman Investor from Irving, Texas
    Replied over 3 years ago
    Hello David: I think not. After looking at some other articles on the net, this one was the most helpful: https://ttlc.intuit.com/questions/3019256
    Larisa G. from San Diego, CA
    Replied over 3 years ago
    Then why in the current instructions for form 1099-misc landlords are not mentioned in Exceptions for filing? I am confused.
    Andy H. Investor from Stockdale , Texas
    Replied over 3 years ago
    Good question. I’d love to hear the author’s input on this.
    Amanda Han Accountant from Fullerton, CA
    Replied over 3 years ago
    Larisa a renter is not required to 1099 the property manager, but the property manger is generally required to 1099 the landlord.
    Amanda Han Accountant from Fullerton, CA
    Replied over 3 years ago
    To clarify Larisa, most property management companies do issue required 1099s to landlords so landlords are not exempt unless if they operate in an entity such as a C Corp or S Corp.
    Larisa G. from San Diego, CA
    Replied over 3 years ago
    Amanda, do landlords require to file forms 1099 to service providers like repair contructors, etc ? What if landlord operates not as S-corp but rather as a sole proprietor?
    Mike Dymski Investor from Greenville, SC
    Replied over 3 years ago
    What about moving personally owned properties into LLC(s) in the event that the corporate tax rate (including pass-thrus) is reduced? That appears to be the most imminent issue/question right now for real estate investors.
    Amanda Han Accountant from Fullerton, CA
    Replied over 3 years ago
    Hi Mike, Once we have more information we will let our readers know what to expect. At this point is is unclear whether any changes will be made to flow through entities and if so what the changes will be.
    Mike Dymski Investor from Greenville, SC
    Replied over 3 years ago
    Thanks. What happens if the rates change later in the year but we have been operating as a personal owner throughout the year? Will it be too late to take advantage of the (potentially) lower LLC rate?
    Amanda Han Accountant from Fullerton, CA
    Replied over 3 years ago
    Yes Mike it could be too late depending on how the new law is written.
    Mike Dymski Investor from Greenville, SC
    Replied over 3 years ago
    Thanks for the follow up. Many BP members should immediately be evaluating moving properties personally owned into LLCs.
    Aaron Cullen Investor from Portland, OR
    Replied over 3 years ago
    Great question! I’d like to hear thoughts on that as well.
    Account Closed from Whiteville, North Carolina
    Replied over 3 years ago
    Great article. Much needed info.