It’s that Time of Year Again- Get Ready for 2010 Tax Returns!

While tax returns are due in the spring, now is the perfect time to start gathering your documents and strategizing for your return. In order to improve our service and efficiency, we have developed a new system this year. We would like to make prescheduled appointments with you to discuss your return. Please contact our office to reserve a date for your tax return. You will receive an email from us shortly with information we will need to prepare your 2010 return. If you do not receive this email, please contact our office. We look forward to the opportunity to work with you!

Struggling to Make Payments on Your Property? Think Outside the Box!

Are you making payments on a private note? The rates you may be paying might be outdated and not reflect the current market and economic circumstances. Additionally, your other liabilities may have placed excess burden on your ability to make payments on your property. Is there any way to seek relief? Of course there is, you just have to think outside the box!

A client of mine, let’s call him Joe, is a contractor who bought property in 2004 in Pinal County. He initially made a down payment of approximately 20% of the purchase price and has been paying interest on the note to the Seller at a rate of 8% for the balance of the purchase price. Ideally, Joe wanted to pay off the balance within a year of two so he committed to the high rate of 8%. However, several factors affected his source of income, which placed Joe in a bit of a quandary. His contracting business suffered severe losses in the last few years and all of his cash reserves were used just to keep his business from going under. Moreover, the value of the land dropped significantly since Joe purchased the property in 2004 and borrowing rates are currently at an all-time low. Why should he pay off the property at this antiquated rate? Since he could no longer make payments at the 8% rate, Joe was determined the find a solution that would get him out of the hole.

Although his cash reserves were running low, Joe had substantial money in his 401(k), just sitting in a money market account. With this source of funding, we were able to find a solution. Joe forfeited the property back to the original owner and reacquired the land from the owner in the name of his 401k with a new purchase price that reflected the current market value. Since he funded the property out of his 401k, he was able to pay off the land in full while saving $100,000. Joe solved his problem; he just had to think outside the box.

Using your 401(k) or other retirement plan can be a great option for investing in real estate. After all, your 401(k) is a long term investment and what is more long term than real estate? You can invest in just about any type of real estate and the income and appreciation will build up tax-free until you start to take withdrawals.

There are a few disadvantages to using a retirement plan to purchase your property. There may be a substantial amount of paperwork required to fund the purchase of your property through your retirement account, depending upon the type of retirement plan that you have. For example, you may need to find an independent custodian who offers real estate as an investment option. If your property is mortgaged, then you may be required to file Form 990-T with the IRS in order to allocate the income earned from the debt-financed portion of the property. The income from the debt-financed portion of the property, not sheltered by the retirement plan, would then be subject to ordinary income tax rates. In most cases, all-cash transactions are the easiest.

Using your 401(k) to invest in real estate is a creative way to utilize your retirement investment options. In Joe’s case, it was the perfect solution to get him out of a bind and saved him an enormous amount of money. If you are considering your retirement plan as a funding source for acquisition, a wrong step could result in a tax nightmare, so be sure to consult with a tax professional.

Give Yourself a Financial Makeover- Evaluate your Net Worth!

It’s the beginning of a new year, and it is the perfect time to evaluate your financial goals for the year. In order to get where you want to go, you need to know where you are. Take a look at our net worth calculator worksheet. Once you see what you have, you can create a budget and determine what your net worth could be and realize your dreams!

Tips for a Successful 2011!

Happy New Year! We hope your 2011 is off to a successful start. January is the perfect time to set goals for your business and get organized. Here are some tips on how to start the New Year on the right foot.

- Update payroll rates in Quickbooks. Last December, Obama declared a “payroll tax holiday” for 2011, meaning the employee’s portion of the Social Security tax will be reduced from 6.2% to 4.2%. The Social Security tax reduction replaced the Making Work Pay tax credit and if the reduction becomes permanent, employees will benefit much more than the tax credit. If you have not already, be sure to update this considerable reduction in Quickbooks. The Arizona Department of Economic Security is also issuing notices regarding your tax rate for 2011. Be sure to adjust the rate if there is a change from 2010.

- 1099 and W-2 Time! The deadline to mail W-2s and 1099s is January 31, 2011. Don’t wait until the last minute to file. Be sure to collect W-9s and issue Form 1099 to any individual, LLC, or partnership if you paid more than $600 in rent or services during 2010.Additionally, as a result of the 2010 Small Business Jobs Act, if you are receiving rental income from real property, you are required to file forms 1099 with the IRS and service providers to report payments of $600 or more during the year for rental property expenses, beginning January 1, 2011.

- Get organized! Getting organized seems to be everyone’s New Year’s resolution, but where do you even start? First of all, establish a filing system for your business whether it be electronic or paper filing. You should scan or file all your bank statements in one place so you can easily retrieve them. Another suggestion is to purchase Pendaflex binders sorted by each month. You should place all paid bills in one binder and all deposits in another binder so all expenses and income are stored in an organized fashion.

- Goals, Expectations, and Budget. Review your P&L from 2010 and use this as your measuring tool to create goals and expectations for your business. At the same time, examine your budget and look for new quotes from your vendors to stick with it.