Choosing the Right Tax Professional for YOUR Specific Needs with Natalie Kolodij | BP Money #112

TL;DR

Natalie Kolodij shares tax strategies for real estate investors.

Transcript

welcome to the bigger pockets money podcast show number 112 where we interview Natalie Cole adiy from Cole attacks and hear tax tips for aspiring real estate investors hello hello hello my name is Mindy Johnson and with me as always is my stupendous co-host Scott trench Scott and I are here to make financial independence less scary less just for so... Read More

Key Insights

• Natalie Kolodij emphasizes the importance of choosing a tax professional with specific experience relevant to your industry, especially for real estate investors.
• Real estate investors should be aware of the implications of the Tax Cuts and Jobs Act, particularly the doubled standard deduction, which affects itemized deductions.
• For those with complex income streams, such as house hacks, it's crucial to hire a tax professional early to avoid costly mistakes.
• Kolodij advises maintaining organized records of expenses and income, stressing that bookkeeping is essential for accurate tax preparation.
• The concept of a real estate professional status can offer significant tax benefits, but it requires meeting specific IRS criteria, including time spent on real estate activities.
• Kolodij warns against seasonal tax preparers who may lack the necessary experience and credentials to handle complex tax situations.
• House hackers need to carefully allocate expenses and understand the tax implications of living in and renting out parts of their property.
• Filing for an extension does not extend the time to pay taxes, only to file the return, which can lead to penalties if not properly managed.

Questions & Answers

Q: What should you look for in a tax professional?

You should seek a tax professional with specific experience relevant to your industry, especially if you have complex income streams like real estate investments. They should have proper credentials, such as being a CPA or enrolled agent, and a proven track record of handling cases similar to yours.

Q: How does the Tax Cuts and Jobs Act affect real estate investors?

The Tax Cuts and Jobs Act doubled the standard deduction, which affects itemized deductions. This change simplifies tax filings for many but also removes some direct tax incentives for homeownership, making it crucial for real estate investors to strategize their deductions effectively.

Q: What is the real estate professional status and its benefits?

Real estate professional status allows investors to use passive losses against active income, regardless of their total income. To qualify, you must spend at least 750 hours annually on real estate activities and more time on these activities than any other job.

Q: How should house hackers approach their tax returns?

House hackers should treat their property as two separate entities: personal and rental. Expenses and income need to be allocated based on the square footage used for rental purposes, and they should maintain detailed records to ensure accurate tax filings.

Q: What are common mistakes in tax preparation for real estate investors?

Common mistakes include not taking all eligible deductions, such as cell phone and internet expenses, and failing to properly allocate expenses in a house hack scenario. These errors can lead to leaving money on the table or incorrect tax filings.

Q: When is it beneficial to file for a tax extension?

Filing for an extension is beneficial if you're unable to complete your tax return by the deadline. However, it's important to remember that the extension only applies to filing, not paying taxes, so estimated payments should be made to avoid penalties.

Q: Why is bookkeeping important for tax preparation?

Bookkeeping is essential for maintaining organized records of expenses and income, which are crucial for accurate tax preparation. Without proper bookkeeping, you risk missing deductions and making errors that could lead to penalties or missed opportunities for tax savings.

Q: What should you do if you realize past tax returns have errors?

If you discover errors in past tax returns, you can amend them. For depreciation errors, a special form may be required if the mistake spans multiple years. Correcting these errors is crucial as they can compound over time and lead to significant tax liabilities.

Summary & Key Takeaways

• Natalie Kolodij provides insights on how to choose the right tax professional for real estate investors, highlighting the importance of specific industry experience. She also discusses the impact of recent tax law changes and the need for strategic tax planning.

• Kolodij delves into the complexities of tax preparation for house hackers and those with multiple income streams, emphasizing the value of early professional advice to avoid long-term errors. She also touches on the benefits and requirements of achieving real estate professional status.

• The discussion covers practical advice on maintaining organized financial records and the pitfalls of using inexperienced tax preparers. Kolodij also explains the nuances of depreciation and how it affects long-term tax liabilities for real estate investors.