All Forum Posts by: Michael Plaks

@Glenn Cosburn

Don't even try to complete 4562 by hand. It's not worth the grief and the resulting errors.

When you use tax software, you will simply pick up a type of asset from the drop-down list (for example "residential real property") - and the software will complete 4562 for you the right way, as well as carry it to all other connected forms.

Don't complicate this. You did not pay anybody by doing the work yourself. You saved on labor. There is no tax deduction for this, however, because the money stayed in your pocket. You only have a tax deduction when the money leaves your pocket.

Trying to create a fake payroll will actually make it worse, not better.

@Stanley Crawford

First, there're LOTS of people who miss depreciation, and unfortunately even CPAs miss it, not to mention the franchise shops like H&R Block. Don't kick yourself. Now, let's get the concepts right. 

1. By not taking depreciation you only hurt yourself. You could deduct it, but you did not, so you have been paying more taxes than you should have. With cheap properties, those were small amounts, so maybe not that much was lost. You can start taking depreciation now and possibly decide to just let the old errors stay. It's not like you're breaking the rules or cheating the IRS. You're cheating yourself.

2. Where it becomes a problem is when you sell a property. The IRS rules will tax you on that old depreciation - as if you did take it. As in - maybe you borrowed $100 from me, and maybe you did not - but you still owe it to me. Unfair, I know. But the IRS goes like - hey, you could take it, so we assume you did, and if you did not - it's your problem, not ours.

3. Because of the #2, most people want to fix this problem when they discover it. People who don't know enough suggest that you redo ("amend") your old returns. Wrong. First, you can only go back 3 years. Second, it is specifically not allowed by the IRS. The right way to fix it is via Form 3115. It is a very complicated form, and very few people know how to do it right. Doing it wrong is not worth it. I would not entrust it to some random tax person if I were you. This is one of those situations where professional help is needed. And not just any professional help - a real expert.

4. The timing of Form 3115 matters. In a low-income year, you do not want to do it. This form creates a large one-time deduction, so you better choose a high-income year for this procedure.

5. Whenever you're ready, I recommend you hire one of the tax professionals from this BiggerPockets forum. There are some 20 of us here, working with clients remotely, no need for a face-to-face. Most of us have experience with 3115. Your local CPA may or may not. If you go local, quiz him about 3115 and make sure he knows how to do it.

@George Blower is correct when it applies to 401k.

However, our discussion was about a former 401k rolled into an IRA.

@David Abollo

The first question would be what is your business model. If it is flipping land parcels - i.e, buy and quickly resell - then you can set up a retirement plan for this business. 

You can contribute a portion of your net profits into the plan. Net profit means - after deducting all expenses of running the business. 

The simplest option is SEP-IRA, but it is limited in what you can contribute (20% of your net profit.) Solo 401k is more complicated, but you can contribute more, as @Dmitriy Fomichenko said.

Your question is more likely to get a response on this forum

@Ryan Easley

I don't share your excitement. When you open the door so wide for abuse - do you know what always happens next? Regulatory overreaction.

@John Lee

If you paid by credit card, his income will be reported to the IRS by the credit card company on Form 1099-K. You don't need to report it on 1099-MISC.  

See Page 2 of the instructions if you do not believe me.

Anybody else besides me sees a 10-mile "FRAUD" sign all over this? 

I'm not talking about the law, it is real. I'm talking about the wide open gates for abuse with self-certification and such.

These rules are complicated. The answer to your boiler and fencing question is: most likely yes. Which method is better depends on many factors, and it's up to your accountant.

In July, I will be teaching a webinar for tax professionals on Sec. 179 and bonus depreciation, together with @Ashish Acharya, a CPA who is also active on this forum. Feel free to contact one of us if interested, however it will be rather technical.