Fabulous Financials

I completed my taxes, but I need to do a little more research (maybe even call the IRS hotline again: 1-877-777-4778) to confirm a few things before I submit the e-file button.  The good news is, I don’t owe this year!  Yay!  So far, it appears that I will receive a refund from federal and state, primarily due to this money pit my rental property.

When I hired an accountant last year, I learned quite a few things about the tax treatment of residential rental property. Now that I’m doing my own taxes again this year, I’m learning even more.  From IRS Publication 527 (Residential Rental Property), here are 4 basic tax tips for residential rentals that I thought were interesting:

1. Advance rent. Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.

This was interesting to me because I remember when my tenants paid their December ’07, January ’08, and February ‘08 rent in December ‘07.  Collecting rent early should be a good thing, but I was concerned that the advanced payment would increase my taxable income for 2007.  When I blogged about it, a reader stated that the extra payments could be claimed as income for 2008 depending on my accounting method: accrual vs. cash.  However, I learned this is NOT true.  If you receive advanced rent, it as taxable income in the year you receive it, regardless of the accounting method used.

2. Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.

This was interesting to me because I used to think the security deposit was taxable income. But after familiarizing myself with state rental laws, I learned that I have to keep the security deposit in a separate account and return the deposit plus accrued interest when the tenants move out – assuming all lease terms were honored. In that case, it isn’t really MY money.  It’s more of an insurance or collateral for damages.  However, if I do not return the security deposit, then I have to report it as income.

3. Vacant rental property. If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. However, you cannot deduct any loss of rental income for the period the property is vacant.

This was interesting to me because I had a 2.5 month vacancy in 2008 – over $4k out of pocket and no rental income to offset it.  Man, that hurt!  But oh well, rules are rules.  When the rental is vacant, loss rent is not deductible.  On the same accord, if the rental is occupied, but the rent collected is less than the monthly mortgage payment, the difference is not deductible.

4. Local transportation expenses. You can deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property.

This was interesting to me because I live over 75 miles (one way) from my rental property.  Between multiple trips when the property was vacant this summer and quarterly inspections when it is occupied, I racked up hundreds of miles.  It’s also good to know that the 2008 standard mileage rate for business miles driven is 50.5 cents per mile.  With the rising cost of gas this past summer, every little bit helps.

There is so much more to learn about the tax treatment of residential rental property. It’s enough to drive you to drinking!  Between Sunday afternoon and Monday evening, I’ve emptied two bottles of Moscato. LOL!  I tell you what though.  I only plan to do this for one more tax year.  I’ve decided that being a landlord is simply not for me.

[image credit: frugal.families.com]

This year, I will prep and file my own federal taxes using TaxAct.  It’s an online tax program with FREE federal e-file for everyone, regardless of income. I also use the TaxAct program to calculate my state taxes, but I do not e-file my state taxes with TaxAct because they charge $13.95.  I prefer to complete my state return on the state’s Department of Taxation website.  After comparing the numbers from both sources for accuracy, I file my state taxes directly with the state because their e-file is also FREE.  With federal and state combined, the total cost of my tax preparation and e-file is $0.

I plan to complete both returns and e-file no later than this Sunday.  According to the IRS refund schedule, I should expect a direct deposit of my federal refund sometime around the last week of the month.  From the state’s website, my state refund will take approximately 10 days.

How do you prepare your taxes? Which program?  Pen & ink?  Hire someone?

I received my $900 Economic Stimulus rebate today!!

In a previous post titled, 5 Ways to Spend My Economic Stimulus Rebate, I mentioned that I might spend it on shopping, savings, vacation, bills, rental property, or maybe even donate it. I thought it was pretty funny how the readers who visit my blog daily pegged me so well. Many of you probably know me even better than some of my closest friends. LOL

For those who may be curious, I plan to spend the $900 by:

1 – Donating $500 to the non-profit that helped my family.

2 – Spending $400 on ME – either shopping or vacation. Yes, ALL ME!! LOL

The reason? All others expenses would have been incurred whether I received the stimulus rebate or not. So I already have a plan for them in the budget. As for saving, I’m in no rush. I have a pretty robust savings plan and I have no doubt that I will meet my goals.

Instead of being responsible, I’m going to be a good American citizen and help stimulate the economy! First stop? The Designer Shoe Warehouse! LOL!

I’ll post pictures if I find anything fabulous. ;-)

photo credit: jonnyphoto

According to the IRS Economic Stimulus Calculator, the Economic Stimulus Payment Schedule, and this handy dandy Where’s My Stimulus Payment status form, I expect to receive a $900 check sometime this week – hopefully tomorrow. So I’ve decided to do a variation of BK Diva’s fantasy vs. real world analysis. Fact or fiction, here are 5 ways I may consider spending my economic stimulus rebate.

1. Go shopping!

Surprise, surprise! LOL!

What? A girl can always use some M.A.C., a new suit, wrap dress, handbag, two or three pairs of shoes… You know, a little something something. I’m just saying.

2. Save it.

Last month, I increased my eFund goal from 15k to 20k. Da hell was I thinking? This eFund is a moving target so I guess I need to tighten the bootstraps. With an $18k balance, I only need another $2k or so. By the time I hit the next milestone, I’ll probably bump it up again. Weird, huh? Saving is addicting!

I also have that ‘other’ goal I’ve been ignoring all year. You know the one, invest $5k in taxable non-retirement accounts. My plan is to buy index funds through Vanguard, so I need at least $3k to get started.

3. Spend it on a summer vacation.

Although Paris is no longer an option for this year, I am planning two outings within the next few months – one with my fam and the other with my friends. Both can be managed with monthly cash flow, but it sure would be nice to have extra money earmarked for acting a plum fool. LOL

4. Pay bills.

My car insurance policy expires in mid-June. Currently, I pay $460.30 for six months and I’ve been a good girl on the highways and biways. So I’m going to shop around for a better premium. Hopefully I can get it down to $425. Then again, with my luck, I’ll get a speeding ticket on June 1st. I aint lying!

Let’s see, what else?

Oh yea, my tags also expire in June. I’m not sure what the costs will be, but I assume I will have to pay for another state inspection, property taxes, and fees for the license plate and registration. If my memory serves me correctly, that could be about $350.

One more thing, BabyGirl is having her braces removed on Monday and she’s being fitted for retainers (top and bottom). Those little things are expensive!! Can you say a few hundred a pop?!?!

5. Spend it on my rental property.

My tenant is moving out at the end of June, so that means cleaning, painting, and advertising. Depending on the extent of the wear and tear, some of the expense will be deducted from the security deposit, but I know I’ll have some out of pocket expenses as well. Then, finding new tenants will be a challenge in and of itself. I’d rather assume the carrying costs than have a tenant from hell. So I’m estimating ~$500 out of pocket if things go well and ~$3k out of pocket for the worse case scenario.

BONUS: Donate it.

As a result of my recent personal issues, I discovered a wonderful non-profit agency that has been heaven sent. Prior to this year, I didn’t know they existed, but they helped my family overcome a situation that would have otherwise been catastrophic. I can’t remember how I found them, but I do know that God doesn’t make mistakes. Since they operate 100% on donations, I would like to pay it forward for the next family who may need to use their services.

Which option(s) do YOU think I should choose?

Which option(s) do you think I will mostly likely choose?

How will YOU spend YOUR economic stimulus check?

Want to know if you qualify for an Economic Stimulus (ES) payment? The IRS has prepared this handy dandy Economic Stimulus Payment Calculator that will ask you questions about your 2007 filing status and income. All you need to do is pull the information directly from your 2007 tax return. Note: you have to file your 2007 taxes in order to get an economic stimulus payment. When you’ve answered the questions, it calculates your expected economic stimulus payment with results like this:

Based on the information you provided, your expected stimulus payment is $x.

Then it gives you a link to the Economic Stimulus frequently asked questions.

If you’re curious about when you’ll receive your ES payment, you might want to view the IRS Economic Stimulus Payment Schedules. The link includes a handy dandy table about 1/2 way down the page, but in a nutshell, the date you will receive your check depends on the last two digits of your social security number (SS# of first filer if married filing jointly) and whether you included direct deposit information on your 2007 tax return.

If you included direct deposit info on your 2007 tax return, your ES payment will be sent to you via direct deposit in the first round of payments (no later than mid-May). If not, your ES payment will be issued via snail mail with the second round of payments (as late as mid-July). For both methods, see the payment schedule for specific dates.

If that isn’t enough information and you’re just dying for more because you want your friends and family to think you know everything there is to know about the economic stimulus payments, see the IRS Economic Stimulus Payments Information Center. But for the rest of us…

The most important things to remember:

• File your 2007 taxes by April 15
• Include direct deposit information – even if you owe
• Sit back and wait for your check

Oh, and when you receive it, don’t forget to stimulate the economy. Not that his opinion matters anymore, but your president seems to think that spending it is kinda important too.

[image credit: viewimages.com]