DARRIN T. MISH: Good morning, this is the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: It is you, it is Darrin! I am Katrina Madewell, your co-host.
DARRIN T. MISH: This is the IRS Solution Attorney Radio Show. Good morning.
KATRINA MADEWELL: We’re glad you’re here, thank you for listening.
DARRIN T. MISH: Absolutely. It’s cool when people call the office, and they say I heard you on the radio, I heard you on the podcast. Or, I have your app on my phone. It’s very flattering, and I feel blessed to be here.
KATRINA MADEWELL: Have you had anybody yet that recognizes your voice and didn’t connect the dots? I’ve had that one; it’s cool.
DARRIN T. MISH: You’ve been on the radio a lot longer. No, I don’t think I have had that.
KATRINA MADEWELL: It’s just neat. They’re like, oh, I know you. They recognize my name and my voice. I’ll call the studio when Pat George is here, and he doesn’t recognize my voice.
DARRIN T. MISH: Never mind that it’s Pat’s job to talk on the radio, and answer the phone and know what’s going on. We’ve been out for a few weeks, had some replays playing.
KATRINA MADEWELL: Shhh, not supposed to talk about that.
DARRIN T. MISH: Yeah, ok. We are moving right along.
KATRINA MADEWELL: You guys don’t care. Hopefully, it was still a great show for you. We do pre-record them every once in a while.
DARRIN T. MISH: On occasion. Today we’re live, and we’re having a good time. It’s a nice day outside. The traffic wasn’t too bad. Although, something about a bunch of nails and plastic on the Howard Franklin going northbound now. If you’re in the mess, we feel sorry for you.
KATRINA MADEWELL: If you’re going to Tampa from Pinellas, don’t take the Howard Franklin.
DARRIN T. MISH: But don’t turn your dial, we want you to listen. We have a great topic. Today’s topic is Buy a Boat and 9 Other Ways to Cut Your Taxes this summer.
KATRINA MADEWELL: Did I tell you how much I love this topic? Listen. You’ll appreciate this. I think I may have shared this once before on the air, but I had a CPA a while back. We just weren’t seeing eye to eye on some different things. The way my business model works is probably totally different than the traditional agent. Which means I might have some expenses that I believe are reasonable, necessary for my business. We’ve talked about this.
One of the comments she made to me because I had quite a bit of travel expenses, she said, why do you have travel expenses? You’re a real estate agent. And I thought, really? My response to her was, ok, I can understand your thought process with that, but I’m just curious, do you prepare taxes for any other real estate agents? I said, what do their numbers look like compared to mine?
DARRIN T. MISH: Their gross number, that’s what you want to know.
KATRINA MADEWELL: She didn’t ask me any questions after that.
DARRIN T. MISH: You see this big gross number? This big gross number is generated by this small amount of travel, in part, so that’s why that’s an ordinary and reasonable expense.
KATRINA MADEWELL: I had asked one time about a boat being a tax-deductible expense. Wait, hear me out.
DARRIN T. MISH: I just rolled my eyes, ladies and gentleman.
KATRINA MADEWELL: Here’s the thing, I have some real estate friends that exclusively sell waterfront property.
DARRIN T. MISH: Ok, alright, we’re tracking, I get it.
KATRINA MADEWELL: There are a lot of questions that sometimes buyers will ask you when they’re relocating, especially from other states, that you’re not going to know the answer to unless you can put a boat on the water.
DARRIN T. MISH: There’s an awful lot of waterfront homes in the Tampa Bay area. But there’s also a lot of waterfront homes in the Tampa Bay area that aren’t, especially on the rivers, that isn’t all that impressive from the front, but when you’re on a boat from behind, you’re like holy smokes!
KATRINA MADEWELL: Have you ever noticed, when you’re on a boat in the water, the real estate sign is always in the back. Sometimes it’s not in the front, but it’s always in the back.
DARRIN T. MISH: Usually the front of the house has some kind of barrier. If it’s high-end, it has some kind of barrier, can’t see the front. But the back is wide open. There are the pool and the dock, outdoor kitchen. Ok, that kind of makes sense.
KATRINA MADEWELL: Plus, your assessor is looking at the front, they’re probably not roaming around your backyard, especially if it’s fenced. So, think about that. Anyway, my question was…Chris and I just, you’re going to think I’m crazy, but we wanted to go look at an island, but you have to put in a boat to see it. It’s by boat access only. There’s been plenty of times that I’ve had customers looking to buy stuff on the water and they want to see what’s around there. From the water, they want to know the depth of the channel, what kind of boats can get in there. People can speculate, but the telltale sign is when you’re driving down the canals and you’re on the water, especially if there are bridges to contend with, look at the size of the boats that are in the dock, and you can tell.
DARRIN T. MISH: Chris Madewell, if you’re listening, it looks like you’re going to get a 35-40 foot center console. It’s going to be a business write-off.
KATRINA MADEWELL: It’s what we’ve been looking for. But a long story that I started to tell but didn’t finish is the last accountant that gave me a hard time about some of my travel expenses; told me a boat would absolutely not be a tax write-off. Her exact words, and my husband, he loved this. You’ve met my husband so he was eating it up. He goes, here’s Katrina, here’s the rest of the world with the IRS.
It wasn’t long after that that I changed CPA’s. This accountant concurs with what I talked about, which is right on track with today’s topic of the show.
DARRIN T. MISH: I think your point is, you have to track with your accountant well. Accounting is not a science. A lot of people, particularly accountants, want to call it a science. Oh, there are specific rules. And there are. But, it’s still not a science, it’s art. There’s some philosophical thought that has to go into it. It helps if your accountant understands your particular business model, not just your unique business model, but it would be nice to have an accountant that did prepare taxes and work for other real estate agents.
Truckers are an interesting situation too. There’s a bunch of special tax breaks for truckers. We do some trucker returns, but there are some specialists that do trucker returns specifically. Especially the long=haul guys. They’re out on the road, and they have per diem things. They have some high expenses.
KATRINA MADEWELL: I imagine meals and entertainment are not standard like the rest of the people because always on the road.
DARRIN T. MISH: No, they’re not.
KATRINA MADEWELL: It’s not like they can put a kitchen in the truck.
DARRIN T. MISH: The meals are not standard. It’s one of those deals where trucker returns look a bit different from other people’s because there are some high expenses. But, if you think about it, if you’re a trucker and you’re out on the road 15-20 days a month, you’ll have high meal expenses because every single meal is pretty much out on the road. There are some guys that try to eat healthily and go to the grocery store. But where are you going to park your rig when you’re trying to go to Winn Dixie or Publix, or wherever.
KATRINA MADEWELL: I imagine it’s not incredibly convenient to have a certain meal plan lifestyle if you’re a trucker.
DARRIN T. MISH: What I’ve noticed is guys tend to get heavier just because they’re sedentary. They’re sitting all day long. Plus they’re eating at truck stops.
KATRINA MADEWELL: 99 cents meal? 99 cent heart attack.
DARRIN T. MISH: Today’s show is roughly based upon an article at blog.concannonmiller.com. Concannon Miller is a powerhouse accounting and business consulting firm based right here in St. Petersburg. I’m a big fan of them.
KATRINA MADEWELL: We didn’t invite them in? We’re right here in the St. Pete’s studio.
DARRIN T. MISH: Yeah, I’m a big fan of theirs. I regularly read their blog and follow them closely on social media.
KATRINA MADEWELL: You’re going to have to give me this stuff earlier, and I’ll call them and invite them as a guest.
DARRIN T. MISH: The show is based roughly on their blog article. I thought it was so great that we would talk about it.
KATRINA MADEWELL: Well, who doesn’t want to know nine ways for tax debt? Sign me up; I’ll take it. Especially if a boat is on the list! Yeah!
DARRIN T. MISH: We’re going to tease you on the boat for a little bit. It’s not going to come early in the show. In the interest of full disclosure.
KATRINA MADEWELL: But, that’s fun.
Cut Your Taxes Tip 1: Entertain Business Clients
DARRIN T. MISH: The first issue is, you can entertain top business clients. You may be eligible to write-off up to 50% of the costs of business meals and entertainment if you entertain clients before or after a substantial business discussion. For instance, after you hammer out a business deal, you might treat a client to a round of golf, and then dinner and drinks. The 50% limit applies to all of the qualified expenses, including the amounts you paid for your client, yourself, and significant others. I think alcohol is excluded from this. Although, you know.
I think alcohol is specifically excluded. Let me throw in a tip for your documentation substantiation should you ever be called for this. What I think is a good practice is to go ahead and take the receipt, not the credit card receipt that just has the total on it, but the itemized receipt you get from the restaurant. Write the person’s name on the receipt and a quick blurb about what you discussed business related and put it on the receipt.
Then when you send it off to our friends at Shoeboxed.com, you’ll always have that receipt. You might eat at the same restaurant all the time. Maybe you go to Outback Steakhouse, you may not remember in July of 2017 I had this meal at Outback Steakhouse and I was trying to write it off. But if you write, John Smith and we talked about the mega-merger deal, then that will jog your memory, and that would probably be considered good enough substantiation if you were ever to have a tax audit.
KATRINA MADEWELL: For me, I always write the customer’s name and it would match with my calendar. And I would know when I wrote contracts and that kind of stuff, and I have a stellar memory.
DARRIN T. MISH: That’s not going to help if you get audited.
KATRINA MADEWELL: Sure it does. I can write it down.
DARRIN T. MISH: Well, ok, maybe.
KATRINA MADEWELL: I’m not allowed to write it down?
DARRIN T. MISH: Let me tell you something, I just turned 50 in the last couple of weeks, and as you age, that memory thing, it doesn’t work very well. Or, as well.
KATRINA MADEWELL: When it changes, I’ll change.
DARRIN T. MISH: Let’s ask Pat George about that. Is your memory as good as it was when you were younger?
PAT GEORGE: What are you talking about?
KATRINA MADEWELL: Well, we were talking to you earlier, and you didn’t respond.
PAT GEORGE: Because I’m looking at this picture of the Howard Franklin Bridge right now. Northbound, there’s nails all over by the humps, I think both of you head that way on your way home, take a spare with you.
KATRINA MADEWELL: I’m going to look at property in Madeira Beach.
DARRIN T. MISH: I’m going to take the Skyway home just for the scenic route.
KATRINA MADEWELL: What? Are you kidding me? In your truck? If you’re heading into Tampa from Pinellas, don’t take the Howard Franklin. You better hop on over to the Courtney Campbell or the Gandy.
PAT GEORGE: Trying to take my job.
DARRIN T. MISH: When we come back, we have some other ways to cut your taxes this summer. Including buying a boat.
KATRINA MADEWELL: We’ll be back in a minute, stick around.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your co-host, Katrina Madewell. I was talking about how they changed the wi-fi here in the studio, thank goodness.
DARRIN T. MISH: Very good.
KATRINA MADEWELL: That’s why it’s a little better.
DARRIN T. MISH: It’s kind of funny to have a media company that can’t get a decent wi-fi signal.
KATRINA MADEWELL: We’ve always been cracking up about that.
PAT GEORGE: It’s changed now, it’s good.
DARRIN T. MISH: It does seem to be working better.
PAT GEORGE: Oh, it’s everywhere. You can go anywhere here and get a great signal now.
DARRIN T. MISH: Fabulous.
KATRINA MADEWELL: Thank goodness.
DARRIN T. MISH: The internet and media are intertwined nowadays.
KATRINA MADEWELL: It’s not like you get a great cell phone signal in a radio building, let’s face it.
DARRIN T. MISH: Yeah, because the radio building is all shielded for electronic interference and whatnot. It’s kind of like a fortress. Most studio doesn’t have windows, but this studio has a nice window. We’re looking at pine trees and sunny skies. It’s not so great when it’s rainy and nasty out.
KATRINA MADEWELL: Got to save that for the afternoon, it’s July.
DARRIN T. MISH: Absolutely.
KATRINA MADEWELL: Going back to your entertainment, I know we were talking about up to 50%.
DARRIN T. MISH: This is not for the W-2 wage earner. W-2 person, sorry, you’re out of luck. There’s very few. We’re going to talk about a couple here, but there are very few real tax breaks who just get paid wages at a regular job. Unless you have a part-time business on the side.
DARRIN T. MISH: That’s true. If you’re just straight W-2, it’s hard.
KATRINA MADEWELL: There’s an old saying about how if you break bread, you get that connection with people, that you wouldn’t otherwise have. I think it’s money well-spent.
DARRIN T. MISH: Or liquid bread.
KATRINA MADEWELL: Yeah, liquid bread might work too. Going back to the same CPA, another comment she made was, if the IRS audits you, they don’t like to see the big box stores receipt. I would say, so you think I’m going to spend more money at Office Depot just because you’re telling me if I get audited, the IRS is not going to want to see a receipt from Walmart?
DARRIN T. MISH: That’s an interesting comment. I don’t think I’ve ever heard or experienced that. Walmart is a challenging one because you can buy almost anything at Walmart.
KATRINA MADEWELL: But if you have the receipt. Even better, what if I have two purchases, same day same time? This is my stuff; this is my business.
DARRIN T. MISH: That’s what I would suggest. If you go to Walmart, for example. I have light bulbs that are in my lobby that the best place to buy them is Walmart. It’s the cheapest place. Even online. It’s still cheaper to go down to the neighborhood Walmart and buy them. So, when I go buy those light bulbs at Walmart, I just keep the business stuff on that receipt. And let’s say I want to buy some milk or strawberries for the family, that would be another receipt.
KATRINA MADEWELL: Right. Another transaction, right behind it.
DARRIN T. MISH: I don’t want to see in an audit situation, the receipt that has the lightbulbs and milk and strawberries all on the same receipt. It’s not fatal; it’s just not good. If that makes sense.
KATRINA MADEWELL: There has to be a good explanation. For example, every Wednesday we have a team meeting. A lot of times we cook brunch. We bring the team together; we’re eating, we’re discussing everything that’s happening. So that’s a write-off, right? 100%?
Cut Your Taxes Tip 2: Throw a Company Picnic
DARRIN T. MISH: That leads us into the second of nine ways to cut your taxes this summer, and that’s you can throw a company picnic. You can deduct the cost of a picnic, barbecue, or similar get together. Not only will such an event provide your workers an opportunity to relax and socialize, but the 50% limit on meals and entertainment expense deductions, also doesn’t apply. There is one caveat. How’s that for a fancy lawyer word? The benefit must be primarily for your employees who are not highly compensated under tax law.
So, you can’t have a picnic or barbecue or get together with just the executive team. That’s not going to pass muster. In my business, we’re so small; it’s all kind of. There are only a few people. It kind of sounds like that’s what your company meetings are kind of like that. I would say those are company get-togethers. I don’t think there’s a limit on the frequency of this.
KATRINA MADEWELL: We go through a pipeline review, we go through policies and procedures, we talk about what can we improve, what can we make better. That happens every week.
DARRIN T. MISH: Very nice. That’s a good, sound business decision to have those weekly meetings. It keeps everybody on the same page. Keeps your quality control up and makes sure everybody knows what they’re supposed to be doing. Hopefully, it imparts your values down to your team members.
KATRINA MADEWELL: Especially with agents. They’re not all as active as I am. Some agents have been on vacations for weeks.
DARRIN T. MISH: Agents that work for you.
KATRINA MADEWELL: Yeah, and I have a new agent that joined the team and we haven’t even met. That shows how much you’ve been working this summer.
DARRIN T. MISH: I know some of your net worth, and you do a lot more. You have a lot more activity than your average real estate agent. What’s the average agent…
KATRINA MADEWELL: They sell 4-5 deals a year. The average agent.
DARRIN T. MISH: That’s not Katrina Madewell at all.
KATRINA MADEWELL: We do about 100 families a year is what we sell.
DARRIN T. MISH: I was going to say, that’s like a week or a month for you. That would be a slow month.
KATRINA MADEWELL: We usually do as much in a month as the traditional agent does all year.
DARRIN T. MISH: Very nice.
KATRINA MADEWELL: It’s not to brag, but there are things that we see doing that many transactions that an agent is doing four or five deals a year are never going to see. They’re just not going to experience the same challenges.
DARRIN T. MISH: You have your show on Friday mornings at 9 am here on 1010am, MoneyTalk called Tampa Home Talk. So, people that are just listening to this show for the first time and don’t know much about what you do. That’s how you can find out more about Katrina. She always has interesting guests like people who put new porcelain on bathtubs.
KATRINA MADEWELL: Everything in and around the homeowner space.
DARRIN T. MISH: The well guy. The bug guy. I’ve got a rat in my barn, that’s a different aside.
KATRINA MADEWELL: I even had a show once where we had a person on that they specifically trapped wild animals.
DARRIN T. MISH: I was there for that show. It was at a different station. I can remember those two guys came in and they were talking about gators.
KATRINA MADEWELL: Snacks.
DARRIN T. MISH: Raccoons, and squirrels and crazy stuff. It doesn’t fit well with our show here today.
KATRINA MADEWELL: That’s the beauty of it. They’re so different it’s fun. And we throw stuff like this in here every week. Not everybody listening has a tax problem. Just like not everybody listening to my show is in the market to buy or sell a property. But a lot of them might be a homeowner, so we can add some value to what we’re talking about to them. That’s the same thing with this show this week. Nine Ways to Cut your Taxes.
Cut Your Taxes Tip 3: Donate Items to Charity
DARRIN T. MISH: It’s buy a boat, PLUS nine ways, so it’s ten ways. The third way is you can donate household items to charity. If you’re planning on cleaning out your garage or attic or basement. We don’t have too many basements here.
KATRINA MADEWELL: I think they just have my number on speed dial, they call me every week. I always have a box for them.
DARRIN T. MISH: If you do have that kind of stuff and you’re planning on cleaning that up, you can probably find some household goods like clothing or furniture you don’t need, you can consider donating them to charities. Salvation Army and Goodwill. There are even charities that come pick stuff up.
KATRINA MADEWELL: They pick it up at my house.
DARRIN T. MISH: Assuming those things are still in good condition, you can take a charitable donation on those. Here’s one thing that…
KATRINA MADEWELL: How do you put a dollar amount on that?
DARRIN T. MISH: Here’s the thing I would do. You need to Google this. There are worksheets I’ve seen throughout the years. This is the amount of granular detail you’re going to need for this particular tax break if you go through an audit. You’re going to need to put a value on every shirt. On every pair of pants. What I like to see, as somebody who is defending your audit, I would like to see a photo. Back in the day, having a photo was a pain in the neck. You had to take the film to a developer. Nowadays, it’s not that big of a deal.
KATRINA MADEWELL: You can put it on social media, my tax deductions then if you ever have to go back to it, it’s right there. Search it by day. It might get lost in your phone.
DARRIN T. MISH: You can put that up in a cloud. If you had an account with Dropbox or whatever, you could have a little folder for that tax year. If you donate ten shirts, three pairs of pants, four pairs of shorts or a barbecue, then what I would like to see, as the person defending your audit, I would like to see a reasonable valuation for each one of those things. You can look that stuff up. Like what a used shirt is worth. $3 or something. Then have a picture of all that stuff then you’ll be bulletproof.
This deduction is interesting; this is going under itemized deduction under Schedule A. If you don’t already itemize, if you’re a renter, I wouldn’t bother with this. This is not going to help you.
KATRINA MADEWELL: You will help charity, though, if you donate.
DARRIN T. MISH: I’m not dogging out the charity here. I’m just saying this won’t help you save taxes unless you itemize.
KATRINA MADEWELL: But, we do talk about this a lot. Every person listening are self-employed or not, so that’s a good distinction to make.
DARRIN T. MISH: This donating items to charity situation goes on your Schedule A as an itemized deduction. Interestingly, when you donate that stuff, you typically get back a blank receipt.
KATRINA MADEWELL: Yes, I’m not doing it, I’m not putting a value on that.
DARRIN T. MISH: Don’t count your blank receipt. And don’t go crazy. Don’t put $570 for your ten shirts, four pairs of pants, and three pairs of shorts.
KATRINA MADEWELL: Why hasn’t somebody created a business that’s like track my item.
DARRIN T. MISH: There’s probably an app for that. If you had $100 shirt and it was still in good condition, maybe it doesn’t fit, then you’ll take a higher deduction for that than the standard $3 or whatever.
KATRINA MADEWELL: I got rid of half my closet. Fourth of July, I cleaned all day long and got rid of a lot of stuff.
DARRIN T. MISH: That was a rocking good time at the Madewell house.
KATRINA MADEWELL: Well, Chris worked, that’s what I did. I had jeans with the receipt in the pocket, still had tags on it. How much of that could I take? If I pay $35 for a pair of jeans.
DARRIN T. MISH: I would say at least 50%.
KATRINA MADEWELL: Even with the tags and receipt?
DARRIN T. MISH: Ok, well, I don’t know, you’ll have to look that up. 50-75% probably.
KATRINA MADEWELL: You love the curve balls I throw you every week. I have to keep you on your toes. But, they’re so real.
DARRIN T. MISH: As a lawyer, I love theoretical situations.
KATRINA MADEWELL: You guys get paid to argue that stuff.
DARRIN T. MISH: Everybody that comes in has 57 theoretical what-ifs.
KATRINA MADEWELL: Alright, Pat, how’s the traffic doing on the Howard Franklin?
PAT GEORGE: Thanks to one of our callers, Do-Wop has told us, this mess is southbound, not northbound. Southbound you’re stopping right around Lois Ave.
DARRIN T. MISH: Whew, so sorry southbound. I’m glad it didn’t happen right before the show.
KATRINA MADEWELL: I’m sorry we told you north.
PAT GEORGE: Well, that’s what they told us. But because we have our great callers.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your co-host, Katrina Madewell, welcome back. Thank you for sticking with us through the break. We’re super sorry if you’re on the Howard Franklin. I promise it’s not our fault. If you’re in the mess coming into Pinellas from Tampa, I’m sorry. It’s the other way.
DARRIN T. MISH: Today’s show is Buy a Boat and Nine Other Ways to Cut your Taxes This Summer. We’re going slow. So, we’ll speed up because we’re running out of time.
KATRINA MADEWELL: We talk a lot.
DARRIN T. MISH: Yeah, we do talk a lot.
KATRINA MADEWELL: It’s my fault, I think.
DARRIN T. MISH: I think it is. That’s the feedback I get, is your co-host talks a lot.
KATRINA MADEWELL: Yippity yacks.
Cut Your Taxes Tip 4: Send Your Kids to Day Camp
DARRIN T. MISH: So, the fourth way to save on taxes, this is interesting. Send your kids to day camp.
KATRINA MADEWELL: Sign me up for that one.
DARRIN T. MISH: If parents have to work and decide to send their kids to summer day camp while school is out. Assuming certain requirements are met, the costs may qualify for a dependent care credit. That maximum credit is $600 for one child and $1200 for two or more kids.
KATRINA MADEWELL: No maximum age?
DARRIN T. MISH: You need to know this. Specialty day camps are ok. So, baseball or whatever is ok. But overnight camps, no Bueno.
KATRINA MADEWELL: What? Can’t you get rid of them?
DARRIN T. MISH: Nope, overnight camps don’t qualify as daycare.
KATRINA MADEWELL: Why is that?
DARRIN T. MISH: Because of the word “day” as in day care.
KATRINA MADEWELL: You mean, you’re not feeding them at night and providing a place to sleep?
DARRIN T. MISH: Yeah, it’s not night care. So, overnight camp doesn’t qualify. These are tax credits so they could potentially lower your taxes dollar for dollar, which is a little bit better than a deduction. Even I was shocked when I looked at that one and thought it was cool. My kids are too old for this now. But it would have been nice to have thought about that.
KATRINA MADEWELL: I don’t know, it’s debatable. It depends on how good your teens are.
DARRIN T. MISH: This is true. There’s no doubt that kids need supervision. Loads.
KATRINA MADEWELL: Have you noticed there are no camps for teens. They want them to be leaders, directors.
DARRIN T. MISH: Well, there are still sports camps. My daughter is probably going to basketball camp at some point this summer. But what, I’m going to write the $75 off?
KATRINA MADEWELL: Why not?
DARRIN T. MISH: I guess. It’s probably not worth adding a schedule to the tax return.
Now, we’re on the one that everybody has been tuned in and wants to listen about.
KATRINA MADEWELL: Right? Or should we wait? Let’s wait.
Cut Your Taxes Tip 5: Minimize Vacation Home Use
DARRIN T. MISH: Ok. So, the next one is you need to minimize your vacation home use. Federal tax law allows you to deduct the expenses related to renting out a vacation home to offset the rental income you receive. With summer already underway you probably already have your vacation planned and booked out. But remember, you can deduct a loss if your personal use of the home exceeds a greater of 14 days or 10% of the time your home is rented out. So, if you expect to experience a loss, watch your personal use to ensure you remain before the 14-day limit, or the 10% rule, whichever applies. You just want to be careful you don’t go over on that.
KATRINA MADEWELL: You can’t live there all summer.
DARRIN T. MISH: You can’t take the loss. Lots of rentals do experience a loss. I have a little rental from a little house we used to live in when we were younger. Most years I don’t think we lose, we do ok. But, you know. I think there have been losses over the years. If you have a big capital expense like a roof or something like that, you might have a loss.
KATRINA MADEWELL: How long do you have to amortize that? Because you can’t take it all in one year, right?
DARRIN T. MISH: The rule is like a replacement roof needs to be depreciated. I don’t know. I haven’t thought about it. Probably a 10-15 year asset would be my guess. When we replaced a roof, it was a repair. It was government insurance so, I thought or believed, that the deductible on the insurance was actually…I think that was a straight expense. I don’t think it was a depreciable item.
KATRINA MADEWELL: It’s interesting, those quirky things.
DARRIN T. MISH: Just as an aside, if you have roof damage and you’re thinking it’s time for a new roof, don’t just pull the trigger on the new roof, talk to your homeowner’s insurance policy. That’s what we did. I kind of knew the roof was going. It was time. One day the neighbor to that rental house calls up and says I can see in your attic, is that bad? I was like, yeah, that’s pretty bad. So, we went down there and looked at it. It was all torn up. I thought it was animals or something. I was kind of gritting my teeth, I was going to buy the new roof. Then, my father-in-law is a smart guy, he said I should call my homeowner’s insurance policy and I kind of scoffed. Come on. We pay $500 a year for that insurance.
KATRINA MADEWELL: Did it go up? Did it double?
DARRIN T. MISH: No, it did not move.
KATRINA MADEWELL: What?
DARRIN T. MISH: It did not move. I’m not sure I should say the name of the company, but it’s not one of the higher rated companies in the state. It’s a lower rated not such a great company by reputation. They came out and looked at it and said it’s storm damage.
KATRINA MADEWELL: Apparently, they’re good enough to come out, write a claim, and not increase your insurance. That sounds like a deal.
DARRIN T. MISH: A new roof even on a small house is probably $10 grand.
KATRINA MADEWELL: The next one is interesting. It’s renting out your primary residence.
Cut Your Taxes Tip 6: Rent Out Your Primary Residence
DARRIN T. MISH: This is called the Augusta rule. You can rent out your house for up to two weeks a year, and you don’t have to report the income on your tax return. How cool is that? Here in the Tampa Bay area, where we have the super bowl every five to seven years, lots of people do rent out their houses, especially upper-end houses for that timeframe. I’m not sure I would feel comfortable doing it, but that’s not what we’re talking about.
KATRINA MADEWELL: You have to be a minimalist. If you have too much stuff, it’s not going to work.
DARRIN T. MISH: Especially a party weekend like the Super Bowl. Stuff’s going to get broken. We have other big sporting events. The Final Four, the women’s Final Four, and hockey and all kinds of stuff. Down here in the Tampa Bay area, and anywhere in the country, you can rent your house out for up to two weeks a year, and you don’t have to pay the taxes on the rental income. It’s completely tax-free.
Cut Your Taxes Tip 7: Business Travel
KATRINA MADEWELL: Sweet. Next, we touched on this a little earlier, but it’s taking advantage of business travel.
DARRIN T. MISH: If you’re taking a business trip, and I travel not quite as much as you do, but I go to seminars, particularly out west. I belong to this group where we meet three or four times a year. In fact, we’re going to Lake Tahoe in August. I’ll probably tag on an extra day or two to enjoy the sites. The air fare to and from the event will be a tax-deductible expense. The meals, while the event is going on, will be a tax-deductible event. The extra nights I stay will not be tax deductible. If I were to bring any family members, their airfare would not be tax deductible unless my wife is involved or attending the event.
KATRINA MADEWELL: Or, she’s a part of the business.
DARRIN T. MISH: She is a part of the business, but she doesn’t usually attend those meetings. Mostly because she has enough sense not to sit in a conference room all day when it’s beautiful outside.
KATRINA MADEWELL: Somebody has to do it.
DARRIN T. MISH: Somebody has to do it, and that’s me. So, that stuff is deductible. The business part is deductible, and the personal part of the trip is not deductible.
Cut Your Taxes Tip 8: Go Fishing!
KATRINA MADEWELL: This one is cool, and it’s going to lead into the fun one last, but go fishing for a deduction.
Cut Your Taxes Tip 9: Buy a Boat or R.V.
DARRIN T. MISH: This kind of leads into what you’re talking about in the first segment of the show about buying a boat. It says the IRS won’t allow you to claim deductions for an entertainment facility such as a boat or a hunting lodge, but you can still write off qualified out of pocket entertainment expenses subject to the 50% limit.
For example, you can take a client out on your boat. You don’t get to take the depreciation deduction for the boat for taking the client out. That would be hard to calculate. But you are eligible to write off 50% of the cost of the fuel, food, drinks, and fishing bait if you qualify under the usual business entertainment rules. That’s a little bit different from your situation. What you were talking about was obtaining the boat as a mode of transportation to better show houses, etc.
If you were going to do that, I would think you would need…I’m down with it, I’m ok with it, but you’re going to have to have scrupulous records. I would want to see in a perfect world, receipts for each trip, maybe some video.
KATRINA MADEWELL: What if it’s wrapped with my company advertisement?
DARRIN T. MISH: I think if it’s wrapped, that’s good.
KATRINA MADEWELL: It’s like a billboard.
DARRIN T. MISH: Then you’re going to have to document the personal use.
KATRINA MADEWELL: Or, if you take a client out every single time.
DARRIN T. MISH: Yeah, well, it could be.
KATRINA MADEWELL: Just in the interest of time, it’s not out of the realm of possibility for me.
DARRIN T. MISH: I think if you had a boat that lent itself to more passenger and entertaining type capacity versus a hard-core racing fishing boat, you have a better argument. If you had a deck boat or pontoon where there’s space for lots of people, that makes more sense to me than you have a cigarette boat that’s 45 feet long and goes 90 mph, that’s going to be harder to argue that it’s purely for business purposes.
KATRINA MADEWELL: So, what are the rules? I’m not sure how a recreational vehicle would be a write-off. But what’s the hard and fast rules?
DARRIN T. MISH: So, have we moved on to buying a boat or an R.V.? You did that with no teasing.
KATRINA MADEWELL: They’ve already been waiting for the whole show.
DARRIN T. MISH: This is a cool write-off. If you take out a loan to purchase an R.V. or boat for personal use this summer, or anytime, the vehicle or vessel may qualify as a second home for Federal Income tax purposes. The bottom line, as my understanding, it has to have sleeping space, kitchen, and toilet facilities. If it has all three of those, then you can write that off as a second home. You can deduct the interest on your Schedule A just like you would if you had a second home.
KATRINA MADEWELL: Are there any prerequisites? Other than it has to have those items?
DARRIN T. MISH: That’s really about it. I have an R.V. that has a sleeping area, and a kitchen, and a toilet. I do write off that mortgage interest on the schedule A.
KATRINA MADEWELL: So just the interest?
DARRIN T. MISH: Yes, you just get to write the interest off. You don’t get to write the payment off. That would be too good to be true.
KATRINA MADEWELL: Unless if I buy it (inaudible)
DARRIN T. MISH: We’re talking about Katrina’s crazy example. I can think of an example where you might buy an R.V., and it might be 100% write-off.
KATRINA MADEWELL: What? Homeless clients in-between waiting for properties to close?
DARRIN T. MISH: What if you’re in construction? And you need to move around. There are many construction guys that travel. They’re in Iron Works or something like that, and so they’re going to travel throughout the country or Southeast.
KATRINA MADEWELL: There are other people that travel for storms and stuff like that.
DARRIN T. MISH: Here’s a good example, do you ever watch the gold rush shows where they’re out mining for gold in Alaska or wherever? They have to have their R.V.’s because they’re in remote locations and they have to stay. I don’t know if it’s a 100% write-off, but it’s a second home. That’s not even debatable at that point. That’s how you can buy a boat, potentially, and save a little on your taxes.
Just to be clear, my dream boat would be a 35-foot Fountain center console go-fast boat with the head underneath the center console. So, you have a toilet, but that’s it. No sleeping facilities or kitchen. That’s not going to be an interest write off. It won’t save you anything on your taxes. Unless you’re a fishing guide or something like that. Or you can demonstrate that you need that vessel to produce income.
KATRINA MADEWELL: I know you think I’m crazy, but we did just look at 15 acres that were boat access only. And we couldn’t get to it because didn’t get our boat in.
DARRIN T. MISH: That sounds cheap. 15 acres on the water.
KATRINA MADEWELL: It was not expensive at all. It was interesting because the guy bought it back in the 70’s for a tax write off and he named the key. I noticed he named the key LLC.
DARRIN T. MISH: Katrina Madewell is talking about buying her private island at this point.
KATRINA MADEWELL: Back in a minute.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: And I’m your co-host, Katrina Madewell. Always thinking about something sassy to say.
DARRIN T. MISH: Today’s show is all about buying a boat and nine other ways to save on your taxes this summer. We made it through all ten.
KATRINA MADEWELL: I think it’s fantastic. We were talking about the boat and in the real estate world, I could do a lot with that.
DARRIN T. MISH: If you were audited and you had the boat, and they were questioning the boat, if you could say you sold “x” number of waterfront properties and we showed those by boat, I think that would be compelling. Now, if you bought the boat and you just swing, and whiff on waterfront properties and they question it, it’s going to be harder to substantiate that.
KATRINA MADEWELL: I tour properties all the time by land.
DARRIN T. MISH: I agree. But I’m just thinking devil’s advocate.
KATRINA MADEWELL: You’re thinking like the IRS.
DARRIN T. MISH: Yeah, I’m thinking like the guy that has to go in there and has to face all the arrows in this case. The client gets to stay at home while the audit’s going on and I’m the one that has to do the quick thinking and fast talking.
KATRINA MADEWELL: I got a hookup. I’m just thinking. He’s known me for a long time, so he knows my crazy thought process. That should be fun.
DARRIN T. MISH: Yeah, should be fun. Let me tell you Mr. IRS man what the taxpayer was thinking in this instance. And he would say, how do you know what the taxpayer was thinking? Well, I do a radio show with her. I’ve been doing it for close to two years now. That’s how I know.
KATRINA MADEWELL: Can you imagine how fun that scenario would be?
DARRIN T. MISH: Oh, boy. Audits are just never fun.
KATRINA MADEWELL: Are they always stuffy old guys that show up?
DARRIN T. MISH: No, all the auditors that…well…the auditors I’ve been dealing with lately locally here are mostly female. There are a couple of guys that do audits in this area. Not a gigantic fan of either one of those guys. They have a tendency to have a philosophy to disallow everything.
KATRINA MADEWELL: Can you challenge that?
DARRIN T. MISH: Yeah, of course, you can appeal, and that’s what we do. It seems like an inefficient use of time and money to go ahead and strike everything and start over.
KATRINA MADEWELL: Can you ask for a different auditor?
DARRIN T. MISH: You’re stuck with who you go. These guys have been there for a long time. It’s kind of like an insurance company. Most insurance companies deny the claim, and “x” number of people just go away. I think that’s what their philosophy is.
KATRINA MADEWELL: If it were me, I would tell the IRS person, come on I’ll take you out on the boat and show you what I do.
DARRIN T. MISH: Probably would be considered a bribe of some sort.
KATRINA MADEWELL: No, they’re working, I want to show them!
DARRIN T. MISH: Yeah.
KATRINA MADEWELL: Then you don’t think I have any point at all with the signs being in the back versus being in the front? Because you know that’s true.
DARRIN T. MISH: Especially if they were your listings, that would be quite persuasive. There’s “x” amount of waterfront properties that Katrina has with her sign and her face on the sign.
KATRINA MADEWELL: Make sure I always have one listed that’s boat access only. It takes a long time to sell those.
DARRIN T. MISH: Like the island, you’re talking about buying.
KATRINA MADEWELL: The kids asked me don’t billionaires buy islands?
DARRIN T. MISH: You should have just looked at them, cocked your eye and say yeah, maybe. Who says I’m not?
KATRINA MADEWELL: They already think we’re crazy.
DARRIN T. MISH: A private island sounds good. It also sounds mosquito infested.
KATRINA MADEWELL: Yeah, there were a lot of mosquitoes. But the springs at the higher price tag and that was cool.
DARRIN T. MISH: You’ll have to do a study and figure out of it’s buildable, and how much it would cost to get utilities out there.
KATRINA MADEWELL: One of our inspector partners is also an engineer. I had him at a home inspection, and I’m like, what does it take to put utilities on an island? He said there’s a lot of variables.
DARRIN T. MISH: He’s like, a lot of money.
KATRINA MADEWELL: How far away is it, are we doing reverse osmosis?
(train wreck sound)
Train Wreck of the Week
DARRIN T. MISH: That’s the train wreck sound. What that means is it’s time for the IRS Train Wreck of the Week. This segment of the show is probably my favorite. It’s where we get to talk about somebody who came into the office and their situation was virtually a train wreck. It was just a bad situation and we got to help them out and usually they come out smelling like a rose.
KATRINA MADEWELL: A hot mess, and you get to fix them all up.
DARRIN T. MISH: This gentleman came into the office and he was complaining of having a tax lien that had been filed against him. Perhaps that’s how you’re feeling out there. You have a tax lien filed in your county causing you some trouble. It was causing him to not be able to get credit. Things he was trying to access. The IRS had a lien outstanding for him for $39,276. So, just a little shy of $40,000.
He came in and I think he wanted to do an offer in compromise, which we talk about on this show where you make a deal to settle for less. But in visiting with him and getting to know him and form a relationship with him, I was able to identify that this was a situation where he didn’t really owe that tax. So, we were able to file an original tax return reflecting a small refund. This was from a 2005 tax year and there was still some time left on the statute of limitations.
KATRINA MADEWELL: He doesn’t get it, right?
DARRIN T. MISH: He doesn’t get the refund.
KATRINA MADEWELL: Yep, I knew that.
DARRIN T. MISH: Though we wiped out $39,276.
KATRINA MADEWELL: How did that happen? How did he go from owing 40 grand to wiping it out?
DARRIN T. MISH: Remember, we talk about this a lot. It was all due to the cancellation of debt. He fell under one of the exceptions for cancellation of debt income was not taxable income. We filed the return and IRS form 982 that deals with the cancellation of debt. The IRS accepted that return, wiped out the balance, then when we requested they release the lien, this has never happened, the IRS said, we need $12 to pay for the recording fee for the release.
KATRINA MADEWELL: They asked you for $12.
DARRIN T. MISH: The taxpayer. The taxpayer wrote a check for $12, and the lien is being released as we speak.
KATRINA MADEWELL: He’s probably like how fast can I deliver this check?
DARRIN T. MISH: He came out looking pretty good. He walked into the office owing almost 40 grand he walked out of the office a few months later…we went through the process, and he doesn’t owe the IRS one thin dime. He had to pay them $12. That’s it.
KATRINA MADEWELL: Those things keep on tacking on. I had a young couple buying their first house, and they had a state tax lien that started cheap around $100, it ended up being around $300. Which is minor, on the scale, but the point is, you get somebody that might start off with a $40K tax bill and could end up being $120K.
DARRIN T. MISH: This was an interesting case because there were only a couple years left on the statute of limitations. We talked about that. I told him there are only less than two years left on the statute of limitations, if you do nothing, this will probably just resolve itself and the lien will be released, and everything will be fine. But he wanted to buy a house and didn’t want to wait two years. So, I was like, ok, we need to find a faster way to deal with it. And we did.
KATRINA MADEWELL: It just depends on where they’re trying to go.
DARRIN T. MISH: That’s one of the things I’m trying to focus on when I do initial consultations, is I’m trying to figure out what the person’s hot button is. What are you trying to accomplish? That’s really my job. The job isn’t just to solve the problem as I see it, my job is to give the client a win as they define it.
KATRINA MADEWELL: I start there every time. When people buy or sell it’s never about buying or selling a house. I’m always like, why am I here? What’s the big picture?
DARRIN T. MISH: Our “why” for buying the farm we live on now is we want to raise hogs. Bizzaro. The kids were involved in 4-H, and they wanted to raise hogs for the fair and it was just too hard to do in suburbia.
KATRINA MADEWELL: This week was fun, I hope you guys have had a great 4th of July week. We’ll be back at the same time the same place next week.
DARRIN T. MISH: For this week, we’re out.