Graduates walking

How to get a college tax deduction paying your children

Pay for college and get a tax deductionTax Return

Learn a great tax deduction strategy.  Helping your children pay for college is one of those benefits of being a parent.  Helping them pay for college and getting a tax deduction is a benefit of being a business owner.  This post applies to your college age children over 18.  When you hire a child who is under 18 for your proprietorship, they are exempt from payroll taxes.  However, that is not the case for children over 18.  Here is how you get the college tax deduction.

Hire the child for odd jobs

Summer is a great time for children to earn some money for college.  You will likely have odd jobs around your Home Office during the summer months.  Things your children can do include

  • prepare mass mailings
  • distribute fliers
  • make home office repairs
  • Update social media campaigns
  • Work on your website
  • research blog posts

Contract labor rather than W-2 employee

If you hire your child as a W-2 employee, you will have to pay employment payroll tax.  You will not pay these taxes if you hire the child as contract labor.  You ask, “Does this make my child subject to self-employment taxes?”  No

The Supreme Court ruled that self-employment trade or business meant the job needs to be have continuity and regularity.  The contract jobs described above are not regular.  They are certainly not meet continuity.  They are not part of a trade or business.  There is no expectation that your child will start a business performing occasional tasks like those described above.  They are one-off tasks.  Such activity ends with the summer.

Because your child is not in a business, you provide all of the materials.  They provide the labor.  They should not have business expenses to claim.  

Making the college tax deductions work

You pay your child $10,000 for the summer.  There are no payroll deductions.  It is a business expense to you and you deduct the $10,000.  In the 30% tax bracket, you save $3,000 in federal taxes.  The child will pay 6% or $600 in taxes.  The net savings for the family is $2,400 and the added bonus of the child learning to earn money.

DISCLAIMER

This article is for training purposes only.  Jody Wall does not warranty the accuracy of the training.  It is not intended to be legal or accounting advice.  Seek competent consultation for your particular situation. Readers assume all responsibility for their decisions.

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Home office tax deduction

Home office tax deductions can save you thousands

Home Office Tax Deductions Defray Living Expenses

Home office tax deductions offer so many tax advantages it makes me wonder why more people

Home office

Home office

do not start their own business.  One of the rewards of being a business owner is cutting back on the daily commute grind.  The home office is a way to transfer some of your living expenses to your business and get a deduction.  Some of the benefits of the home office include:

  •  Deduct a portion of mortgage interest, taxes, insurance, utilities
  •  Repair deductions – repairs on your principle residence are not deductible but office repairs are.
  •  Pest control
  •  Office equipment depreciation
  •  Building depreciation

Home Office Tax Deduction Limits

These amounts really add up.  The amount of the deduction is limited to the income from the business.  If you no income, you do not have a deduction.  If you have little income, you have little deduction.  You may think, “I do not make any money now so the home office deduction is not worth it.”  That thinking is faulty.  I always say, “Every deduction is sacred.  Every deduction counts.  Deductions shall not be wasted.  Oh make the tax man shout.”  Claim the deductions now and every year.  They can be forwarded to future tax years in perpetuity until you do have income to attack.  If you are in business, you intend to make money.  When you do, limit the amount the tax man taketh.

Example Home Office Tax Deduction Calculations

 The table calculates the home office deduction of 10% office use of a 1400 square foot home.  You paid $140,000 for the home. 

Item Gross Expense Office Percentage Deduction
Interest $5,136 10% $513.60
Property Tax $2,400 10% $240.00
Insurance $800 10% $80.00
Utilities $3,200 10% $320.00
Depreciation $4,364 10% $436.40
Repairs – whole house $3,000 10% $300.00
Repairs -office $400 100% $400.00
Total $1,854.00
25% tax Bracket $463.50

I know I would rather have the $463 in my pocket rather than the governments. If I deferred this amount for two years, it will still be a tidy sum and will be added to the intervening year’s deductions.

Vehicle Tax Deduction

Commuting to work is not considered business miles.  Eliminating the commute will lower the number of personal miles on your vehicle.  You benefit from a higher percentage of business use and save yourself the wear and tear on your vehicle and your stress.  I certainly do not miss sitting in traffic 90 minutes a day.

DISCLAIMER

This article is for training purposes only.  Jody Wall does not warranty the accuracy of the training.  It is not intended to be legal or accounting advice.  Seek competent consultation for your particular situation. Readers assume all responsibility for their decisions.

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Renting to relatives

Beware! Renting to relatives can be a financial disaster.

Charge Fair Market Rent

Renting to relatives is fraught with financial disaster unless the arrangement is structured carefully.  When it comes to the IRS, no good deed goes unpunished.  You decide to help your kids get a good start in life and out of your house.  You buy an investment property and rent it to your child for enough to cover the payments but $200 less than fair market rent.  You don’t have a lease because it is your child.  You are not looking to profit from your child but don’t mind the tax breaks.  Everyone wins, right?  Wrong.

Pitfalls of renting to relatives

To be considered a business, the IRS expects that you have the intention to make a profit.  By charging your child less than fair market rent, your profit motive on buying the property will be destroyed. The IRS will consider the property a second home.  You will be able to deduct taxes and interest but you lose the following:

  1. Depreciation
  2. Repair costs
  3. Insurance
  4. You lose the possibility of the loss on sale deduction
  5. You pay tax on the income from the property

Avoid the pitfall of renting to relatives

The arrangement should look arms length and structured like any third party arrangement.

  1. Have a lease.  Formalize the arrangement between you and your relatives
  2. Establish profit motive.  Charge fair market rent.  Document the amount of the fair market rent. Do NOT discount the rent as a “gift”.
  3. Do not reduce the rent if they do repairs or upkeep.  Your brother should pay the rent.  You can pay him for the repairs as a separate arrangement.
  4. Have proof of payment.  Make sure the money goes from them to you.
  5. Make sure the property is your relatives primary residence.  If mom and dad spend most of the time in Michigan rather than the rental in Texas, the Texas property will be a vacation home.

Ways to help your children and preserve profit motive

You can give $14,000 per year per person with them paying no tax.  The gift should be independent of the rental agreement.  They should be able to use the money anyway they want.  It is a gift after-all.  In no way do you want to do anything to destroy arms length agreement that destroys the profit motive.

Conclusion on renting to relatives

Rental property is one of the best investments available to people today.  It builds wealth and reduces taxes.  Ensuring all arrangements are formal and arms length ensures you get the tax deductions  you counted on when you bought the property.

Image by: http://www.greenresidential.com/

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single family residence

How to select a single family residence investment property

Selecting the right single family residence investment property

This video contains criteria I use in selecting single family residence investment property.  You need to know your target client before you can even begin selecting a property to purchase.

Subscribe to my YouTube Channel to see my latest videos.

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familty business ownershp

Retire poor or financially independent. Family Business

Americans retirement future is in crisis mode

Americans are facing a retirement crisis.  Most are ill prepared for the realities of retirement.  Here are some sobering statistics:

  1. 10,000 baby boomers a day turn 65
  2. 45% of US retirees live below the poverty line
  3. Poverty is higher among women
  4. 90% of Americans do not own their own business

The situation is largely a caused by our 20th century world view.  My father and grandfather were taught to get a good education, get a job with a good company, live on less than you earn, and save.  For all of their good intentions, this is the recipe that led to mass poverty.  In nearly all of human history prior to World War 2, people remained in close family units.  They worked together to build a life.  They worked to pass it on to the next generation.  My great grandparents would have eaten dirt rather than sell their land. They valued giving it to the next generation.  Today, family units are scattered.  We rarely see each other much less work together.

A new business paradigm for retirement in a new century

Harvard Business Review recently published an article Why the 21st Century will belong to the family business.  Big corporations take the short-term view of the next quarters earnings reports.  CFO’s will sacrifice long-term good for short-term gain.  Family businesses are the opposite.  They sacrifice now for the long-term.  They look to add lasting value.  Their motivation does not come from the stockholder but rather making the family secure.

The Wall’s paradigm shift to retire with a family business

My husband and I do not think like average Americans.  We chose a different path.  We decided there would be no excuses and we will do what it takes to succeed.  We studied for two years before we started our business.  We realigned our resources.  We cast a vision and set a goal.  Here are some of the changes.

  1. We sold all of our stock and stock options and got completely out of the market
  2. I got my Realtor’s license
  3. We invested in property
  4. We moved in with our children and rented out our house.  This move cut $4,000 per month from our expenses, added $1,000 per month to our income and provided massive tax breaks on the property.
  5. My oldest son rehabs property, builds advertising and networks.
  6. My husband plans and executes long-term activities.
  7. My bother is the construction manager.
  8. My sister-in-law keeps the books
  9. I meet with bankers, investors, buy property, etc.
  10. My youngest son is in the Marines but has a law degree in tax and business entities.  He has an MBA and will come home to the business.
  11. My brother, both sons, my husband and I pooled our financial resources into an LLC to expand the business.

We act differently because we want a different outcome.  It is paying off.  Our retirement is realistically 4 years away.  It has been difficult.  We have made mistakes but we always fall forward.   Our passion is to help those around us achieve their own financial security.  If you read my blogs from that perspective, you will understand our soul.

We look forward to helping you on your journey to financial independence.

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Social Security

Why you must build passive retirement income

Social Security is half the income for 61% of Americans

You must have your own passive retirement income.  Social Security is anything but what its name says.  It is estimated the $2.8 Trillion in reserves will be depleted by 2034.  While 85% of Ameicans say Social Security is important, the facts are the remedy to the problem are political suicide.  Neither Congress nor the populous have the will to take action.  Kicking the can down the road makes the problem worse.  I am not betting my future on the hopes of millennial’s generosity to raise their taxes.  Passive income that you control is your own security trust fund.

Congress has embezzled $2.5 Trillion from Social Security

Congress has not met a spending bill it did not like.  The large trust fund sitting there waiting on your retirement was too tempting for them to avoid.  Buy votes today and leave an IOU in the cash register.  The reason Congress wants to cut or delay benefits is they do not want to face accountability of paying the money back.  The fact is they know it cannot be paid back.  The only real choice will be to raise taxes and remove the contribution ceiling.  Congress was not fiscally trustworthy for the last 50 years. Taking more money from the people will not cause their ways to change.

Passive income is exempt from Social Security tax

Earned income is subject to social security tax.  Currently, unearned income is not subject to the tax.  Investing in passive income streams like real estate gives cash flow that is exempt from social security.  Take you income stream out of the path on Congress.  Wise  financial planning would dictate you make it as difficult as possible for them to steal your savings.  Real estate passive income when held in a real estate business also lowers your overall federal income tax.  Not only are your social security and income taxes lowered but you get equity  build up with renters paying off your mortgage.  Moreover, the income increases with inflation.  We have recently raised the rents on all of our properties in-line with current market trends.  Our percent return increases each passing year.

Experts speculate Congress might raid private 401k’s

I am not a doom and gloom conspiracy person.  However facts are that desperate governments do desperate things.  The crisis will not go away and it will only get bigger.  Each day 10,000 baby boomers turn 65. Socializing retirement funds is one possibility for the government to remain solvent.  While it seems fanciful now, a Greek style crisis in America may cause a drastic shift in policy.  I have moved my 401k to be self-directed.  Moreover, we only contribute enough to get my husbands company match.  Our real estate business provides more than enough tax deductions to make our passive income tax free.  There is no need to defer taxes in a 401k.  There is no need to pay taxes on it in the future.  I am free to use it now, before 59 1/2 .  In addition, the money is in a corporation rather than a retirement account.  The corporation lives forever.  The children already own much of the stock.  The money is out of congresses reach in a retirement fund.  It will not be subject to a death tax when we die.

Take action now building passive retirement income

The time to prepare is before Winter comes.  Those of you who watch Game of Thrones heard winter is coming for several seasons.  Winter finally arrived.  Protect your sunset years from a harsh fiscal winter looming on the horizon.  Educate yourselves and take action today  building you passive retirement income.

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Homes for Sale in Kennedale ISD

Homes for Sale in the Kennedale School District

Why Do People Live here?

Kennedale is a small bedroom community on the major cross-roads of Arlington and Fort kennedale art festi valWorth. Located just South of I-20 and along Hwy 287, Kennedale has easy access to the DFW Metroplex.  However once you are off the freeway, small town life emerges.  The main reason people choose Kennedale is because of the schools.  The school district encompasses all of the City of Kennedale and a small part of Southwest Arlington. Kennedale schools are highly rated and compete on the UIL 4A level.  Parents like Kennedale because the schools are large enough to have facilities and programs parents expect but with school sizes small enough for the students to be highly involved.

See more on the schools below.

Looking for a homes for sale in Kennedale ISD?

Interested in finding homes for sale in the Kennedale ISD? Click that link to find all the currently available homes.  Kennedale is the perfect place to raise a family and homes in the school district move quickly.

What’s the Kennedale area like?

The homes you would expect to find for sale in the Kennedale area are a mixture of affordable to luxury homes.  First Texas is a major builder with Brookstone Estates and The Vineyard additions located here. Homes in these additions range from 2500-4000 square feet. Shady Creek and Shady Creek East are an established neighborhood built in the late 1990’s and early 2000’s.  Home here also range in the 2500-4000 square feet.  Falcon Wood  Estates is an exclusive gated community of custom homes that sit on 0.5 acre or more  The lots are heavily wooded.  Homes in Falcon Wood Estates are typically over 4000 square feet.

What’s Going on Nearby the Kennedale?

Kennedale was established in 1887 and is located at I-20 and Hwy 287.   Kennedale has upgraded their major roads through town and have constructed traffic circles to prevent congestion.    Kennedale’s city tax rate is 2% and the state tax rate is 6%.  The total sales tax rate is 8.5%.  The Kennedale Youth Association has football, baseball and softball.  There is also a miniature basketball association. The community has a beauticul city park.  The  City Hall area features a gazebo and place host to an art fair.  Kennedale has a 9/11 memorial in the shape of a sun dial made from a steel beam from the Twin Towers.  Kennedale is one of seven town to become a certfied scenic city.  The standards included

  • Strong standards to enhance the visual character of its streetscapes including sign regulation and landscaping
  • Emphasis on establishing and protecting parks, trails and open spaces
  • Programs such as Keep Kennedale Beautiful and the establishment of a natural park to promote healthy riparian wildlife and provide passive recreation.

What Schools will the Kids Attend?

Kennedale High SchoolKennedale has one high school and one junior high school.  The Kennedale Wildcats are very active in sports and arts programs.  The James A. Arthur Intermediate school serves fifth and sixth grade.  Grades K-4 attend two elementary schools: R.F Patterson and James F. Delaney.  R.F Patterson mainly serves children living in the Arlington part of the school district and is located on the East side of Hwy 287.

Now You Really Want to Find a Home Here, Right?

If you are interested in the current Homes for sale in Kennedale ISD, click on the link. Our ‘for sale’ property information is a direct feed from the North Texas MLS and is updated multiple times per day.

  Kennedale ISD Boundries

Kennedale ISD Ratings

  See the related post Homes for sale in Kennedale gated communities

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Falcon Wood Estates

Homes for sale in Kennedale Gated Community

Advantages of Gated Communities

Homes for sale in a Kennedale Gated Community

Kennedale’s gated community is exclusive and located in the sought after Kennedale School District.  Gated communities are often sought after for their amenities.  They offer security and privacy.  gated communities offer other advantages:

  • Safer and quieter streets by restricting through traffic
  • You are free from pesky solicitors
  • Home owners associations restrict the “improvements” neighbors can make.  You also probably did not want the 20 foot Santa in your neighbors front lawn in February.
  • Lawn and fence codes are enforced without waiting for the city to take action.

Looking for a home in Kennedale?

Interested in finding Homes for sale in a  Kennedale Gated Community? Click that link to find all the currently available homes.  Kennedale is the perfect place to raise a family and homes in the school district move quickly.

What’s the Kennedale gated community like?

Kennedale has an new and exclusive gated community  Falcon Wood  Estates boasts custom homes that sit on 0.5 acre or more  The lots are heavily wooded and the community has a two acre stocked lake.   There is also a private wooded picnic ground.   Homes in  Falcon Wood are typically over 4000 square feet.  The community is restricted to only 80 exquisite homes.

What’s Going on Nearby the Kennedale?

Kennedale was established in 1887 and is located at I-20 and Hwy 287.   Kennedale has upgraded their major roads through town and have constructed traffic circles to prevent congestion.    Kennedale’s city tax rate is 2% and the state tax rate is 6%.  The total sales tax rate is 8.5%.  The Kennedale Youth Association has football, baseball and softball.  There is also a miniature basketball association. The community has a beautiful city park.  The  City Hall area features a gazebo and place host to an art fair.  Kennedale has a 9/11 memorial in the shape of a sun dial made from a steel beam from the Twin Towers.  Kennedale is one of seven town to become a certified scenic city.  The standards included

  • Strong standards to enhance the visual character of its streetscapes including sign regulation and landscaping
  • Emphasis on establishing and protecting parks, trails and open spaces
  • Programs such as Keep Kennedale Beautiful and the establishment of a natural park to promote healthy riparian wildlife and provide passive recreation.

What Schools will the Kids Attend?

Kennedale ISD has a 4A high school and  junior high school.  The Kennedale Wildcats are very Kennedale High Schoolactive in sports and arts programs.  The James A. Arthur Intermediate school serves fifth and sixth grade.  Grades K-4 attend two elementary schools: R.F Patterson and James F. Delaney.  R.F Patterson mainly serves children living in the Arlington part of the school district and is located on the East side of Hwy 287.

Now You Really Want to Find a Home Here, Right?

If you are interested in the current Homes for sale in a  Kennedale gated community, click on the link. Our ‘for sale’ property information is a direct feed from the North Texas MLS and is updated multiple times per day.                  Kennedale ISD Rating

Schedule your showing

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Runnig a Marathon

Establishing metrics is essential to reaching goals.

Congratulations you set a goal

Setting a goal worthy of investing your life in is a major accomplishment.  Celebrate.  You are now in the top 10%.  Setting the goal is not the same as achieving the goal.  You need an action plan.  You need consistency in your action.  That is still not enough.  You need metrics.

Metrics provide intermediate milestones to celebrate

Achieving a life-long goal is like running a marathon.  Metrics are the mileposts along the way that show tangible proof you are progressing.  They provide intermediate goals to strive towards and reasons to celebrate along the way.  When I ran my first 10k, I would have never made it thinking about the finish line.  When my side began to hurt and I was gasping for air, I would focus on an object just at the edge of my view.  I would monitor my progress towards that object.  Getting there gave me encouragement.  I had a small mental boost.  I thought, “One more down. I can do one more.”  That process took me all the way to the end.

Metrics measure the effectiveness of your action plan

Activity is not accomplishment.  Doing something is not important.  Doing the right thing in the right way is essential.  Metrics provide the mechanism to determine if you are doing the right thing. They help ensure you do not get side tracked.  Life throws a lot at you.  It is easy to focus on the urgent but that does not mean you are doing the important.  Metrics will show when you are busy but not progressing.  Metrics give you a signal it is time to correct your daily routine.

Active Rain provides a set of metrics 

My goal is to grow my business online.  That will certainly not happen overnight.  One intermediate milestone is getting traffic outside AR.  Back up from that and it is showing up on the Google search.  A step back from that would be having people read my posts and commenting.  You can daisy chain that back to your AR rank, Points and post views.

 In my first week and with the help of AR members, I have already reached some of my first milestones.  I posted my first 10 articles.  I have more than 10 followers.  I am number 3 in my city and closing in on the top 100 (141 out of 1,953) in my county and top 1000 ( 1,468 out of 18,466) in my state.  I have my first 1000 page views on my posts.  These things in themselves are not important.  They will not bring me clients.  They do however show that I am progressing in building an online presence.

I am thankful that I have found Active Rain and look forward to the continued journey.

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