Flipping Houses - reporting requirements

If you actively in an ongoing capacity buy property to fix up and resell even if you are doing it aside from your regular voacation you are"flipping" real estate and as such not eligible to treat those properties as capital assets. If you are holding property for sale on a continuous and regular basis in a trade or business, you are a dealer. As a dealer, you should be reporting the sale of these properties on Schedule C and the income is subject to self-employment tax. This is true regardless of whether or not contractors are hired to do some or all of the work. The client must capitalize the costs of fixing up the home and any carrying charges under §263A, known as uniform capitalization or UNICAP rules.

Schedule D is not the proper form to report the transaction. Nor is the transaction considered a Like-Kind Exchanges on Form 8824 or Sale of Business Property on Form 4797. As a dealer in property, you must report your income and expenses on Schedule C and pay self employment tax.

The key as to whether or not you are a 'dealer' of property is determined by how regularly and how consistently you buy property, fix said property and sell said property.

Regularly and consistently are terms that can be interpreted many ways. It is my opinion that if you flip 3 or more properties in any one tax year, and the deeds to those properties overlap in time you are a dealer and should file accordingly.

The easist way for investment 'traders' to report transaction gains and losses to the IRS

According to the instructions for Schedule D (page 6), instead of entering the details of each transaction separately on Schedule D or D-1, you can attach a statement containing all of the same information as Schedules D and D-1 as long as it is in a similar format. The combined totals are entered on lines 2 and 9 of Schedule D. Use as many statements as necessary. Do not write “available upon request” along with the summary totals instead of reporting the details of each transaction, that is a red flag for an audit. So yes if your brokerage firm provides you a detailed report of your transactions for the year that should be reported on the schedule 'D' under capital gains/losses you can attach that report to the schedule 'D' and enter the totals on lines 2 and 9.

What tax form must an LLC file - Limited Liability Corporation

For federal income tax purposes, there is no specific form for an LLC.

If an LLC has a single member and makes no election to be taxed otherwise, the LLC files as a disregarded entity. That means it files whatever form the activity performed in the LLC would have filed if there was no LLC. For instance, an individual taxpayer operating a non-farm trade or business in an LLC files Schedule C. If an individual taxpayer operates a rental property in an LLC, it would be reported on Schedule E. If an S corporation owns a single member LLC in which there is rental property, the corporation would file Form 8825 to claim the income and expense from that rental activity just as if the LLC did not exist.

If the LLC has more than one member, it defaults to a partnership.

The LLC can elect to be taxed in a different manner. The only limitations are that a single member cannot elect to be taxed as a partnership and a multi-member cannot elect to be taxed as a single member. See IRS Form 8832, Entity Classification Election, for more details.

Who is a qualifying relative for tax credit purposes?

For someone to be a qualifying relative, four tests must be met:

1. The person cannot be a qualifying child of another person.
2. The person must either live with the taxpayer for the entire year or be a relative.
3. The person’s gross income must be less than $3,400 for the year.
4. The taxpayer must provide over half the person’s support for the year.

Will the Alternative Minimum Tax (AMT) changes delay your refund?

This year, some early filers may have to wait a few extra weeks for their refunds. The delay is due to the Alternative Minimum Tax (AMT) legislation enacted in December by an inept and bumbling Congress working with a lame duck President.

Most tax filers will not be affected by the AMT legislation. The delays in processing and refunds will be experienced only by those who include any of the following five forms with their 2007 individual income tax return:

1. Form 8863, Education Credits.
   
2. Form 5695, Residential Energy Credits.
   
3. Schedule 2 (Form 1040A), Child and Dependent Care Expenses for Form 1040A Filers.
   
4. Form 8396, Mortgage Interest Credit.
   
5. Form 8859, District of Columbia First-Time Homebuyer Credit
   

If you are filing using one of the five affected forms you won’t be able to send your return to the IRS for a few weeks until the IRS computers are reprogrammed for the late tax law change.

The IRS expects to be ready to process returns with the forms listed above by February 11, 2008. They're doing the best they can to serve the taxpayers in this capacity so please don't allow this delay to be too terribly frustrating.

Even if you are affected, you should remember that it is always a good idea to start working on your tax return sooner rather than later. Filing electronically is the best option for everyone, including people impacted by the AMT changes. Whether or not your return claims an AMT related credit, filing electronically results in faster refunds and fewer errors. When you e-file combined with direct deposit you can expect your refund in as little as 10 days. Refunds from paper returns typically take four to six weeks.

Should YOU File a tax return?

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,500. However self-employed individuals generally must file a tax return if their net income from self employment was at least $400.

Even if you do not have to file, you should file to get money back if Federal Income Tax was withheld from your pay, or you qualify for a refundable credit that may give you a refund even if you do not owe any tax. Refundable credits include:

• Earned Income Tax Credit. The Earned Income Tax Credit is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes, and may be returned in the form of a refund.
• Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not use the full amount of your Child Tax Credit
  Health Coverage Tax Credit. Limited to certain individuals who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation.

Choose your correct filing status

Your federal tax filing status is based on your marital and family situation. It is an important factor in determining whether you must file a return, your standard deduction and your correct amount of tax.

Your marital status on the last day of the year determines your status for the entire year. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.

There are five filing status options:

1. Single. Generally, if you are unmarried, divorced or legally separated according to your state law, your filing status is Single.
2. Married Filing Jointly. If you are married, you and your spouse may file a joint return. If your spouse died during the year and you did not remarry, you may still file a joint return with that spouse for the year of death.
3. Married Filing Separately. Married taxpayers may elect to file separate returns.
4. Head of Household. You generally must be unmarried and you must have paid more than half the cost of maintaining a home for you and a qualifying person.
5. Qualifying Widow(er) with Dependent Child. If your spouse died during 2005 or 2006, you have a qualifying child and meet certain other conditions; you may be able to choose this filing status.

7 Ways to get started on your taxes

Here are seven easy ways to get a good jump on your taxes long before the April deadline:

1. Gather your records in advance. Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.
2. Get the right forms. They’re available around the clock on the IRS Web site, IRS.gov.
3. Take your time. Don’t forget to leave room for a coffee break when filling out your tax return as rushing can mean making a mistake.
4. Double-check your math and verify all Social Security numbers. These are among the most common errors found on tax returns. Taking care will reduce your chance of hearing from the IRS and speed up your refund.
5. E-filing is easy. E-filing catches math errors and provides confirmation your return has been received and gives you a faster refund.
6. Get the fastest refund. When you e-file file early, you receive your refund faster. When you choose direct deposit, you receive your refund sooner than waiting for a check.
7. Don’t panic. If you have a problem or a question, remember the IRS is there to help. Try the IRS Web site at IRS.gov or call me at 612-209-2278.
   

Are you concerned that your efforts to get ready early may be affected by the Alternative Minimum Tax legislation passed by Congress in December? Most individuals will not be impacted, so it is still a good idea to get an early start on your preparations. Even if you are filing one of five forms affected by the recent legislation, the IRS expects to be ready for your return by February 11.