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Year End Tax Tips for Property Managers and Property Management Companies

Property managers running their own companies should prioritize for end of the year tax planning, and keep more money in their pockets by taking advantage of the tax benefits available to them.

Unfortunately, 2010 is the worst year for end of the year tax planning due to the deadlock in Congress and the inability of Congress to act upon tax issues. One of the positive tax law changes affecting property managers and property management companies is the Small Business Jobs Act of 2010, which provides $12 billion of tax incentives – including bonus depreciation, enhanced expensing, and other relief for small businesses.


Top 10 Tax Tips for Property Management Companies

1. Accelerate or Defer Income: In 2011, tax rates are expected to revert to 2001 rates. The top income tax rate will increase to 39%and the lowest rate of 10% will be eliminated. If you are in the top tax bracket, it might be better to accelerate income. However, those in the lower tax brackets should follow the traditional tip of deferring income. Income timing is not easy, and you should be sure to consider its impact on various deductions and any tax credits.

2. Accelerate Expenses: Accelerate expenses to reduce your business’s taxable income. Purchase goods and services needed by the business. Pay early bills like cell services, subscriptions, rent, insurance, utilities, and office supplies. You can also stock up on any office supplies, like printer paper and ink cartridges.. The acceleration or deferral strategy depends on the projected profit and losses for your business and the legal structure (LLC, Partnership, S Corp, C Corp, etc). Check with your tax professional to make sure that you get the best benefit out of this strategy.

3. Equipment Expensing and 50% Depreciation: Thanks to the Small Business Jobs Act of 2010, you can deduct up to $500,000 of equipment purchased in 2010,. In addition to first year expensing, write off half the cost of new equipment on top of the regular depreciation allowance. This tax break applies only to equipment purchased in 2010.

4. $8000 Bonus Depreciation on Vehicles: Purchase a new car, light truck, or van in 2010 and if it is used more than 50 percent for business, take an additional $8000 bonus depreciation deduction.

5. Employee Tax Credit: Take advantage of tax credits available for hiring new employees after Feb 3, 2010. For every qualified employee, business owners are exempted from 6.2% Social Security tax, and an additional tax credit of $1000 is available.

6. Health Insurance Credit: Take advantage of the small business health insurance credit, which provides a credit worth up to 35%of a small business premium costs in 2010. The credit phases out gradually for businesses with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full time employees.

7. Contribute to Retirement Plan: Some retirement plan contributions can be made until the day taxes are due, while other require the plan to be set up before the end of the year. Do contribute to your retirement plan, or set one up before the end of the year. Check the contribution limits and deadlines for different types of plans – 401ks, IRAs, Simple, SEP, Roth IRA and Keogh.

8. Carry Back Credits for 5 Years: The Small Business Jobs Act of 2010 allows a five-year carry back of any unused 2010 eligible small business tax credits. These credits may be used to offset Alternative Minimum Tax (AMT) in the prior year. Previously this tax credit was only allowed to be carried back to offset tax paid in the previous year.

9. Convert to Roth IRA: Roth IRAs are unique in that withdrawals from Roth IRAs are not taxed. In 2010, all taxpayers can convert their retirement plan to a Roth IRA and have two options of being taxed on the conversion. The converted amount can be taxed in 2010 income or it can be taxed 50 percent each in 2011 and 2012.

10. Qualifying dividend tax rate: If you have a C corporation, pay yourself a qualifying dividend so you can take advantage of the lower dividend tax rate that might end in 2010. Do not forget to take advantage of the lower C corporation tax bracket on the first $75,000 of income each year. In some cases, payments from a C Corporation to an owner before the end of the year can be assigned to dividend or a loan. If it is done now, it will give you sufficient time to decide the best option and optimize based on any action taken by Congress.

Bonus Tip: Was the property management business started in 2010? If so, deduct up to $10,000 of expenses paid before opening of business by taking advantage of increased deduction of startup costs.

Everyone’s tax situation is different, and this information should not substitute professional advice. Property Managers and Property Management Companies should always consult with their tax advisors to consider specific factors that might affect their situation.


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