Tax Newsletter

Unfiled Tax Returns

  • There is no statute of limitations when it comes to unfiled tax returns, the IRS can go as far back as needed to penalize taxpayers.

  • The IRS can go back indefinitely and require a taxpayer to file.

  • Usually, the IRS only requires taxpayers to file the last six years of returns to get back into compliance.

  • You only have three years after the filing deadline to request a refund.

    • If you haven’t filed, you have three years from the original due date to file and get a refund.

    • Similarly, if you amend a previously filed return to get a refund, you only have three years from the date you filed or two years from the date you paid the tax.

  • Once a return is filed, the IRS has just three years to audit the return or assess taxes.

    • The IRS has 3 years from the date of filing to assess a tax and audit the return.

    • The IRS has 10 years from the date of assessment to collect the tax.

  • If fraud is involved, the agency can go back six years.

  • The IRS has six years from the last affirmative act to bring forward criminal tax fraud charges.

  • If you don’t file, the IRS can issue a substitute for return (SFR) to assess taxes against you.

    • Substitute for return – a tax return that the IRS files on behalf of a taxpayer who the IRS believes should have filed one, but hasn’t.

    • Ignoring the SFR could result in collection actions by the IRS, such as a tax lien or property seizure (including wage garnishment).

How to Catch Up on Unfiled Returns

  • Dealing with unfiled returns can feel very overwhelming. Most taxpayers aren’t even sure where to start. The standard advice is to gather your paperwork and fill out the returns that correspond to the unfiled years. However, this is easier said than done. Most people who haven’t been filing don’t have the paperwork they need on hand.

  • Dealing with your current year’s taxes can be stressful and almost unbearable, but we can help.

  • We can help you file your back taxes and make payment arrangements with the IRS. 

  • The IRS can come after you at any time, and the longer you wait, the worse the penalties and interest will be. To protect yourself, your business, and your assets, contact us today.

Tax Mistakes: Real Estate Investors to Avoid

  • Depreciation: Cash flow positive

  • Repairs vs. Improvements: Capitalization and depreciation

  • Passive Activity Loss Limitations: Salary income vs investment

  • Plan for Capital Gains Tax: Short-term and Long-term

  • Self-Employment Tax: Real estate investor and a dealer

  • Neglecting to Track Expenses Properly

  • State and Local Tax Implications

Tax Deferral Strategies for Real Estate: Basics of the 1031 Exchange

Taxpayers who are willing to stay in the real estate market could benefit from a 1031 exchange. This IRS provision allows taxpayers to postpone paying capital gains tax if that gain is reinvested into a similar property.

  • A 1031 exchange does not eliminate taxes—it simply defers it.

  • Profitable strategy if the taxpayer could benefit from delaying that capital gains tax until a future year.

  • When they will likely be in a lower tax bracket or have more available deductions to offset their taxes owed.

Tax Strategies for Real Estate: Business Entity

  • Individual Owner: No asset protection

  • SMLLC – Asset Protection and simple tax treatment

  • MMLLC (Partnership): Multi Level Member participation with K-1 Subject to SE Tax (varies)

  • S-Corp – Passthrough Income: K-1 (Ordinary Income)

  • C-Corp – Double Taxation Threat

  • LLC - Two-Company Structure

    • Management company and a Holding company (legal advice)

Tax Strategies for Real Estate Professionals

Tax Trifecta:

  1. Allowed to deduct one hundred percent (100%) of their rental real estate losses against any other type of income.

    • Ability to create passive loss write-offs due to depreciation and mortgage interest expenses.

  2. If you are a REP who regularly buys and sells real estate or flips properties for profit, the IRS will scrutinize your exchange differently than if you were a casual real estate investor. That doesn’t mean you are prohibited from the world of 1031 exchanges, only that you must be careful to segregate that activity from day-to-day broker operations.

  3. Leverage rental losses from depreciation utilizing cost segregation:

    • Process that integrates an IRS-outlined engineering approach to identify and separate various components of a commercial or residential property (flooring, windows, electrical, fencing, sidewalks, etc.).

    • The ultimate goal of the study is to move components out of the defaulted longer depreciable lives of 39 years (commercial) or 27.5 years (residential) into a 20-year or less depreciable property.