Its Tax Season Again

Its Tax Season Again.

This year Tuesday, April 17, is the deadline to file your federal tax returns. And this is a good time to remind our friends to double check your returns before sending them off whether electronically or the old fashioned paper method.

The IRS has been touting via public relations officials with the agency, its increased audit efforts. On the radio this morning a spokesman for the IRS stated that the agency has upped its audit efforts and is trying to close the gap on non-payers. He also reminded listeners that not filing a return in many ways is more serious than not being able to pay your taxes, or willfully filing incorrect information. That is because the fines and penalties for not filing, are higher than other tax infractions.

Having been audited myself several times, I know it’s a pain in the butt and I would not wish the experience on anyone. In order to avoid being an audit victim, and I say that with all sincerity, make sure to keep your records organized and available. Remember that there is no statute of limitations for the IRS to come after you for failing to file. Here are a few questions and answers you’ll find useful.

Q: WHO NEEDS TO FILE?

A: Anyone who is employed, receiving earnings more than $8,450 in this tax year, and anyone who is self-employed or independent contractor, earning ‘net’ (after expenses) income over $400. (yes four hundred).

Q: WILL YOU HOLD MY HAND WHILE I AM BEING AUDITED?

A: Yes, I Will.

Q: WHERE CAN I GET GOOD TAX ADVICE?

A: I think the IRS itself is a good source of information. The website has every single form and publication available for download, or you can request that they be mailed to you. I would urge you to request your forms now, because, they won’t get to you in time to do any good if you wait much longer. The IRS website is http://www.irs.gov.

If you don’t have internet access, please e-mail me at john.wall1@century21.com and let me know how you are reading this blog.

Q: WHEN YOU WERE AUDITED, DID YOU CRY?

A: Only once.

Q: WHAT MAKES YOU SUCH AN EXPERT ON TAXES?

A: I am not! You should seek the advice of a qualified tax professional, and I would suggest you find someone who can represent you during an audit.

Some things I would like to remind you of is the long distance phone tax credit available this year. Every individual who has paid for long distance phone service is likely to qualify for this credit. You must however request it on your tax form (any of the 1040 forms) or if you don’t need to file a return, but want to receive your credit, you can file form 1040EZT. The EZT version of the 1040 is used only to request the credit.

Also, make sure you look at other available credits like the EIC or Earned Income Credit. While we are at it, I would like to mention that TAX CREDITS are better for most filers because a CREDIT means REFUND! When a tax credit is available to you, it means the IRS is holding money just for you. The caveat is that you must ask for it in order to receive it. Whereas, a deduction is a dollar amount that reduces your taxable income and possibly your tax liability (the amount you owe the IRS).

Remember a self employed person earning more than $400 must file a return? In theory if you earned $100,000 but had $99,600 in expenses that are deductable on your return, you would meet the qualifier for not having to file a federal tax return. (Don’t take my word on that – this is theoretical)

Some other things to remember are if you file zero income tax returns because you subscribe to certain beliefs such as ‘taxes are illegal’, you might end up in jail. The courts have tried many cases like these and the filer always looses. When the IRS comes after you, it will most likely cost you more than you would ever pay just filing an honest return.

For our home sellers and buyers, remember to get your 1031 and IRC 121 figures together now because in my personal experience, these transactions are audited more frequently (the IRS officially disputes this). If you are audited, don’t panic – Until you are called into an IRS field office. In which case, you shouldn’t go alone. Bring along your CPA, Tax Advisor, or advocate.

Having said that, most tax audits are ‘correspondence audits’ which are very painless, and easy to complete. They’re scary for tax payers because the notice comes in ‘official IRS – you’re about to be horse whipped stationary’. But really, this type of audit basically says, “Hi – This is the government. We have a question about line 22 of your tax return. Would you mind clarifying it please?” See, that’s not so bad! Just answer their questions and all will be okay.

A final thought; tax auditors are not the brutal, meanies that they are portrayed as in comedy sketches. In fact, I’ve never met one that wasn’t pleasant, friendly, and helpful except for one and he’s a jerk.

Go Download Publication 17 for more information on taxes – and remember that taxes are the cost of free society.



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All about real estate commissions

Every buyer and seller wants to save on commissions paid to a real estate broker. We've had discussions before about when to ask for discounts and negotiating the commission amount. So far we haven't talked about what the commission really is and how it works. That's what we're going to do today. {FYI: for the purpose of this discussion, BROKER and AGENT are used interchangeably}


First off, the usual and customary real estate commission is at or around 6%. Business and investment property can be in the upper 10% area. ALL REAL ESTATE COMMISSIONS ARE NEGOTIABLE BETWEEN THE CLIENT AND BROKER.


Usually the seller pays the commission through sale proceeds at the close of escrow. The great majority of real estate sale transactions involve more than one broker (or agent). The seller's agent takes the listing, lets say at 6%. This agent begins a marketing program and lists the property in the local MLS (multiple listing service).


Another agent (most likely) may bring a client over to see the house and write an offer to purchase. If the seller accepts the offer, the other agent will be paid 3% of the 6% commission when escrow closes. This is called the 'Split'.


As an example, lets assume a sale price of $100,000. At the close of escrow the commission settlement may look something like this:


Sale Price: 100,000 x .06 = 6,000 /2 (split 50/50) = 3,000 to each broker.


This example doesn't account for fees and costs each agent incurs in the course of doing business which easily can eat up 1/3 of the commission paid on each transaction. So the take-home pay for agents in our example might only be $2000 and since they are usually self-employed; at least 30% of that will get set aside for taxes. Leaving 1,400 to pay the rent and keep the lights on.



So that is what the commission is. It's a fee for a service and that fee gets split between the service providers. Again, the commission is always negotiable and your transaction may have higher or lower amounts than our example. Every transaction is different and the workload for each transaction is different also.

For tips on negotiating the commission on your purchase or sale, e-mail John.Wall1@Century21.com or Call (562) 449-8421. I'd be happy to help.