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View Full Version : Hey tax gurus need your help!!


Sparky
02-22-2018, 06:18 AM
My wife and I started an LLC flipping homes and she's also a new real estate agent. We went to tax guy and realized we'll get hammered with taxes. I know lots of my fellow pilots have side businesses (including real estate investments). Looking for some practical advice on how to limit our tax exposure. Thanks in advance!!


BobZ
02-22-2018, 06:32 AM
Get divorced?

Ask your accountant about it.

Other than generously allocating expenses thru the llc not a lot one can do outside of specialized real estate that carry tax deductability incentives.

Idk if a non llc with the wife as a RE professional on the joint return would help any. Would carry large PL rider in this case.

If the wife has a W2 income in addition to RE activities it limits this option.

A cpa is good. A cpa that is a tax attorney is a better place to be. Good luck. :)

Sparky
02-22-2018, 07:16 AM
Thanks Bob!! We r looking at a 45% tax rate the way we have it set up now😝


BobZ
02-22-2018, 07:17 AM
Omg...thats brutal.

But it also means you two are doing something right. :)

Sparky
02-22-2018, 07:32 AM
we r doing all right, but not that good to be in that tax rate, just dont think we have it set up very good. the accountants we talk to seem very wary in giving advice, so a tax lawyer you suggest is probably the best for idea! thanks again!

BobZ
02-22-2018, 07:55 AM
Cpa's generally will not provide tax 'strategies'. You can ask what ifs and they will try and give you filing process and mathematical result answers.

If one carries passive activities on a personal return the annual deductability is limited by AGI. The passive losses are not 'lost' but accrue to be used at future date as charge off against gain realized from book value/disposition price.

If the wife has sole income from active participation as a RE Professional any income reports on the return less operating expenses as a business activity.

Passive? Active? LLC carry thru? Your cpa should be able to run approx #s for you.

Sparky
02-22-2018, 08:12 AM
we'll do some more research into all those things and bring them up to our cpa. thanks again for your help!!!!

Baradium
02-22-2018, 01:05 PM
Are you keeping funds the LLC earns in the LLC? Or are you taking them out as income at this time?

I'm not sure what kind of things you can buy for real estate, but I'd assume that a work vehicle would be plausible depending on the scale she's doing. There are usually a lot of things that can go against the income expense wise.

In my case my LLC is for a farm... but for that the hard part is just getting enough income to offset the expenses in general. Starting off with 30+ y/o equipment doesn't help though.

RockyBoy
02-22-2018, 01:47 PM
Are you keeping funds the LLC earns in the LLC? Or are you taking them out as income at this time?

I'm not sure what kind of things you can buy for real estate, but I'd assume that a work vehicle would be plausible depending on the scale she's doing. There are usually a lot of things that can go against the income expense wise.

In my case my LLC is for a farm... but for that the hard part is just getting enough income to offset the expenses in general. Starting off with 30+ y/o equipment doesn't help though.

Retained earnings in an LLC are still taxed unless you set it up as a S-corp which doesn't make sense for any small business.

RockyBoy
02-22-2018, 02:05 PM
My wife and I started an LLC flipping homes and she's also a new real estate agent. We went to tax guy and realized we'll get hammered with taxes. I know lots of my fellow pilots have side businesses (including real estate investments). Looking for some practical advice on how to limit our tax exposure. Thanks in advance!!

I run a farm with my Dad as a 50% owner and have another LLC for a small trucking company. If you are paying 45% in taxes, you are making money which is the whole point of a side business. Limiting your tax exposure really shouldn't be a goal of any LLC, but can be a small advantage if done right. Paying that much in taxes still gives you 55% more of $0 if you didn't have the business. Taxes are painful, but they are no different than any other expense.

Most CPA's should be very comfortable (and recommend) that you deduct anything that is legal. Personal stuff generally is deductible (cell phone, internet, etc.) as a percentage of use that relates to your business, but it doesn't add up to much really. Large capital investments are where the biggest tax write-offs come from. Trucks, offices, real estate, etc. Your CPA should write off a portion of automobile use for the business, cell phone, internet, and obviously all supplies relating to the business. It is also very easy to write off meals when business is discussed. Grey area's that CPS's will be careful about are home office space and business "vacations". Legit trade show meetings etc. are easy, but need to be well documented. To really lower your effective tax rate much, you need large capital expenses. Farms are great for that, real estate business's probably not so much. The easiest way to go bankrupt is to make capital expenditures just for tax purposes. If it won't make your business more money, don't buy it just because it is a good "tax break".

Your LLC also has to make money or the IRS will classify it as a hobby and limit your deductions to basically 0. They usually don't audit that until you have shown a loss for 3-5 years in a row.

I always tell my friends that ask that running a business can be fun if you enjoy it and if it makes money. Don't ever run a business or buy a farm for a tax "shelter". It's cheaper to just pay the taxes. :)

RockyBoy
02-22-2018, 02:12 PM
My wife and I started an LLC flipping homes and she's also a new real estate agent. We went to tax guy and realized we'll get hammered with taxes. I know lots of my fellow pilots have side businesses (including real estate investments). Looking for some practical advice on how to limit our tax exposure. Thanks in advance!!

Your biggest tax advantage of an LLC is that 50% of the income within the LLC should be shielded from self employment tax (FICA and SSA). That is only if you and your wife are both 50% owners of the LLC. Ideally you should be classified as a non participating member of the LCC. (you can still work on houses etc.) How and who did you have setup your LLC and what do you know about the membership rules?

Here is my cliff note version of advice.

1. Have an attorney who knows about LLC's set up your articles of incorporation and by-laws. You can get an LLC from the state very easy by yourself, but the real value of the LLC is in those articles and your by-laws which are usually specific to what you are doing and trying to accomplish. The boiler plate version from the internet or Legal Zoom isn't a good choice.

2. Use a CPA who deals with small business's and understands LLC's. Use Turbo Tax to do your teenagers taxes.

3. Get a checking acount and credit cards in the LLC's name and NEVER use either of them for personal use. Make sure you classify any money that comes to you as a capital distribution. This is the first place any attorney will look if you ever run into a liability issue. Your personal assets WILL NOT be shielded by the LLC if you have ever used any of the funds in the LLC for personal use. Be very nerdy and accountant like with your money. Quicken or Quickbooks is a MUST.

4. Have an annual LLC meeting and record the minutes of that meeting.

5. Don't forget to annually renew your LLC certificate with the state.

6. If your business grows big enough or has significant assets, have an attorney that deals with estate planning work that into your will. It becomes complicated when deeds become involved. You want the LLC to "live" after any owners for tax purposes. You do not want it to be probated.

7. Pay people for advice. APC and Google can a bad thing for advice on an LLC. :)

Sparky
02-22-2018, 05:16 PM
thanks Rocky!! great advice! the main point of this post was to bring some ideas to our tax guys. the guys ive talked to seem not too dimensional, and each has given different advice.

RockyBoy
02-22-2018, 05:41 PM
thanks Rocky!! great advice! the main point of this post was to bring some ideas to our tax guys. the guys ive talked to seem not too dimensional, and each has given different advice.

Good Luck! Business stuff is fun for me, but it isn't easy. Finding a good accountant that knows taxes can be tough. Some of them will seem not too dimensional when talking about a small LLC because there isn't much dimension to it when it comes to "lowering" your taxes. Anyone who sells themselves as a tax guy who can "lower" your taxes is probably doing stuff the IRS won't like.

Find a guy that will listen to you and not act like you know nothing about taxes. I call my guy all the time with stuff like, "Hey I want to put in a sprinkler system for my yard. How should I do it so I can write off half of it as a farm expense?" He'll tell me to tie it into the irrigation system for a field and to replace or do needed upgrades on the farm system while I'm at it. I'm sure with a house flipping business there are lots of business expenses that could benefit you personally.....just be able to justify them to the IRS.

LumberJack
02-22-2018, 08:04 PM
This is just trashy to be honest. Just make your money and pay your taxes. You're not winning bonus points by deducting your new sprinkler system as an irrigation upgrade.

RockyBoy
02-23-2018, 07:05 AM
This is just trashy to be honest. Just make your money and pay your taxes. You're not winning bonus points by deducting your new sprinkler system as an irrigation upgrade.

Not trying to win bonus points, just trying to lower the tax bill. If you have ever spent time running a business and dealing with other business owners and CPA's you would be surprised to see what people write off as a business expense. Trashy isn't a legal term. If it fits within the IRS guidelines and tax law rulings, you write it off. Why wouldn't you?

FL370esq
02-23-2018, 07:46 AM
Why wouldn't you?

Probably just does a 1040EZ. C'mon....why use itemized deductions? They merely "cheat" the system out of what is owed to Caesar. 😁

flap
02-24-2018, 04:21 AM
Have you chosen to get taxed as a corporation, as opposed to just letting income flow through to your personal return and taxed at your rate?

poor pilot
02-24-2018, 05:40 AM
My wife and I started an LLC flipping homes and she's also a new real estate agent. We went to tax guy and realized we'll get hammered with taxes. I know lots of my fellow pilots have side businesses (including real estate investments). Looking for some practical advice on how to limit our tax exposure. Thanks in advance!!

1031 exchange may help, it allows you not to pay capital gains tax if you roll money into another investment within 6months.

poor pilot
02-24-2018, 05:41 AM
You need to find a tax guy thatís a investor



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