Question: Is it best to classify these expenses as education or consultation in order to avoid later IRS scrutiny?On the advice of this site I joined my local REIA. Unfortunately I didn't heed all the warnings. Went to the local conference which I didn't realize was just a sales fest in disguise. I signed up for a bootcamp. At the bootcamp I bought some materials. Was it worth price probably not but lesson learned. Now I'm trying to make lemonade out of lemons. I started LLC, purchased a buy and hold rental, sold an existing rental. Now it's time for taxes. Trying to find an experienced accountant that can provide some bookkeeping advice..running out of time for this year but I want to be able to set up things right in quickbooks before I do hand over to accountant.
I list almost all of theses items under "educational expense". Club memberships I put under "dues and subscriptions"
Not with these items but my accountant looks at every transaction. As long as I have described it well he will move it to where is is most appropriate.
In Quickbooks I created an expense account called "Ask my accountant", and put it there. The accountant is told to examine these expenses and correct the account.
You will likely be able to deduct these expenses as an educational expense. Be sure to include the miles driven to and from theses trainings.
Another thing to consider is classifying these expenses as "start-up" expenses. With start-up expenses, you can deduct up to $5,000 of qualifying expenses in the first year, and amortize the remaining amount over 15 years. This of course depends on when you officially became a landlord. If you had already been landlording, then you may not meet the requirements.
Not legal advice.
@Brandon Hall to classify as start up costs and take the deduction over 15 years seems to be the correct way IMO, based on the timing of events in the OP where the training occurred before any property had been acquired.
You deduct your expenses for qualifying work-related education directly from your self-employment income on Schedule C. To be work-related education, the training (bootcamp) must maintain or improve skills used in your present business. If the bootcamp was designed to make you a better rehabber or to improve your skills in some aspect of your rehabbing business, then the cost is deductible.
From your comments, it appears that the bootcamp training was geared to landlording, and not directly related to a rehabbing business. Landlording, in my opinion, is a new trade or business that requires different skills than needed in a rehabbing business. Thus, in my opinion, the cost of the training is a personal expense and not deductible.
Additionally, a residential rental property activity is a passive income activity reported on Schedule E, not an active income business reported on Schedule C. Whether you can claim a business startup cost for a passive income activity is outside my scope. This is a question to be addressed to your CPA.
I would consider the real estate investment club as a trade organization and deduct the membership dues as a business expense.
Locate a good real estate CPA to advise you on tax strategies.
Amanda Han is active on BP and has posted many times.