Create Tax Breaks: Buy parents' home, rent it back to them!

Say your aging parents live in a home that has appreciated in value, but they're no longer reaping any of the home ownership tax breaks during their retirement years. Sound familiar?

Good news: With one stroke of the pen, both you and your parents can win: They'd gain instant access to their home equity (without moving) and you'd pick up some generous new tax deductions. How? Buy your parents' house, and then rent it back to them—at the going rate.

Reasons for the sale/leaseback.

Under the current home ownership setup, your combined family unit is overpaying the IRS. Your parents' mortgage is either paid off or the payments represent mostly principal at this point. Even if they still take interest deductions, your parents' tax bracket might be low in retirement, so those deductions don't provide much tax savings. In fact,

many retirees take the standard deduction rather than itemizing. Here are two good reasons for your parents to opt into this plan: It puts cash in their pockets without having to refinance or dip into a home equity loan. It allows them to put their money into safer investments than the real estate market.

Transferring the house. To avoid gift-tax complications, pay a fair price for the home. Support the buying

price with a qualified and independent appraisal. Then, both sides should enter into a lease at a fair rental value.

One benefit: Courts have said that landlords can reduce their fair-market rent by 20% when renting to relatives. That lower rent reflects the savings in maintenance and management costs. (L.A. Bindseil,TC Memo 1983-411)

But don't set the rent too low; the IRS might say the rental home is really for your personal use. In that case, your deductions might be limited to mortgage interest and property tax, the same as if you owned a vacation home.

Taking deductions. Once you own your parents' house, you're entitled to reap the tax benefits of owning rental property.

That includes taking write-offs for operating expenses, such as utilities, maintenance, insurance, repairs and supplies.

You also can claim depreciation deductions for the home, but you can't depreciate the cost of the property apportioned to land.

So, obtain an appraisal allocating the price paid between the depreciable structure and the nondepreciable land.

You can use these deductions to offset the rental income received from your parents. Any allowable tax loss will phase out for people with adjusted gross incomes between $100,000 and $150,000. You can take any suspended losses when you sell the house.

Bonus benefit: Once you own the house, you may be able to write off occasional travel expenses you incur when visiting the house (your rental investment).

Endgame: Eventually, your parents won't be able to live in the house. Then, you can sell it, rent it to another tenant or move in. If you move in and make it your principal residence for at least two years, you can sell it and shelter another $250,000 or $500,000 worth of capital gains: a true tax bonanza!

- National Institute of Business Management

QuickBooks Tips #103: List of Payroll Expenses & Liabilities

List of payroll expenses and liabilities
Payroll expenses
Employee’s gross pay
Employer payroll taxes:
- Social Security (FICA)
- Federal Unemployment Insurance (FUTA)
- Medicare
- State Unemployment Insurance (SUI)—if paid by employer
- State Disability (SDI)—if paid by employer
Payroll liabilities
Taxes you’ve withheld from paychecks for the following:
Social Security (FICA)
Federal Unemployment Insurance (FUTA)
Medicare
State Unemployment Insurance (SUI)
State Disability (SDI)
State income tax
Federal income tax

QuickBooks Tips #102: Item Types

The following are various QuickBooks item types.

Items for things you buy and sell

Service Services you charge for or services you purchase.
EXAMPLES: Professional fees, labor
Inventory Part Items you purchase, track as inventory, and then resell.
EXAMPLES: Electrical outlets, t-shirts
Inventory Assembly
(Premier)
Items you produce or buy, track as inventory, and then
resell.
EXAMPLES: Pre-assembled door kits, custom bicycles
Non-Inventory Part Items you sell but do not purchase; items you purchase but do not resell; items you purchase and resell, but do
not track as inventory.
EXAMPLES: Custom-made slipcovers, pizza, office
supplies
Other Charge Other charges on a sale or purchase.
EXAMPLES: Shipping charges, delivery charges
Group A group of individual items already on the item list.
EXAMPLES: A group of services and lab fees for office
visits, a group of services and food items provided by a
caterer

Items that calculate

Subtotal Calculate a subtotal before calculating a discount or
charge that covers several items.
Discount Calculate an amount to be subtracted from the total.
(To discount several items, use a subtotal item before the discount item.)
Payment Record a payment received at the time of invoicing so that the amount owed on the invoice is reduced.
Sales tax Calculate a single sales tax for a sale.
Sales Tax Group Calculate two or more sales taxes grouped together and applied to the same sale.

QuickBooks Tips #101: Accounts Created Automatically

The following is a list of the accounts that QuickBooks creates automatically.
Accounts Receivable. QuickBooks creates this account during the EasyStep
Interview, or the first time you create an invoice.
Inventory Asset. When the first inventory item is created in a company data file,
QuickBooks creates the Inventory Asset account.
Undeposited Funds. QuickBooks adds this account to the chart of accounts the
first time you record a payment from an invoice or a sales receipt. QuickBooks uses
this account to hold money you’ve collected until you deposit it in a bank account.
Accounts Payable. QuickBooks creates this account during the EasyStep Interview,
or the first time you enter a bill.
Payroll Liabilities. QuickBooks adds this account to the chart of accounts
automatically when you turn on the payroll feature in a company file. QuickBooks
initially maps all payroll items that create liabilities to this account.
Sales Tax Payable. QuickBooks creates this account when you turn on the sales tax
feature.
Opening Bal Equity. This account is created the first time you enter the opening
balance for a balance sheet account. Every time you add a new account with an
opening balance, QuickBooks records the second half of the entry in the Opening
Bal Equity account. This means that total equity is the net balance of the assets
minus the liabilities entered into QuickBooks. Once you’ve entered all of the
accounts and balances, you may use a journal entry to allocate Opening Balance
Equity to the proper equity accounts.
Retained Earnings. This account is unique because there is no register associated
with it. Each time you run a balance sheet, you assign the date of the report.
QuickBooks then calculates the net income from all transactions from the earliest
date in the company file to the end of the fiscal year prior to the current year.
QuickBooks displays the results as retained earnings. Because of this feature, you
don’t need to make the traditional closing entries at the end of the year.
Uncategorized Income. QuickBooks creates this account the first time you enter
an opening balance for a customer.
COGS. When the inventory feature is turned on and the first inventory item is
created in a company file, QuickBooks creates a Cost of Good Sold (COGS) account.
Payroll Expenses. This account is created when you turn on payroll in a company
data file. All payroll expense items are initially mapped to this account.
Uncategorized Expenses. QuickBooks creates this account the first time you enter
an opening balance for a vendor.
Reconciliation Discrepancies. QuickBooks creates this expense account when you
enter an adjustment to reconcile small accounting discrepancies. QuickBooks uses
this account to track all reconciliation differences.
Purchase Orders. QuickBooks creates this account the first time you create a
purchase order. This is a non-posting account that does not affect your balance
sheet or income statement.

Allergy Treatment Important for Year Round Wellness

A workplace filled with sneezing in spring, summer or fall may indicate workers are fighting seasonal allergies. And allergies can be serious. It’s wrong to think in terms of grin and bear it. Without treatment, allergies can cause sinus and ear infections, asthma, night-time breathing and sleep problems, and more may result. For adults, allergies are the fifth leading chronic disease and a major cause of lost days at work, according to the Asthma and Allergy Foundation of America. The result: nearly four million missed workdays or lower output days, at a cost to business productivity of at least $700 million each year. Seasonal allergies occur when the human body treats something harmless, such as pollen or mold, as though it were a toxic substance. The immune system tries to rid the body of the pollen in the same way it gets rid of harmful germs, by sneezing, making mucus and causing nasal tissues to swell. It can be tough to rid the workplace of something carried by the air. However, employers can help by urging employees to see a doctor who can rule out major health concerns. Age, health risks and chronic health problems may exclude using certain drugs sold over the counter. A doctor can advise which drugs can be used for treating allergy symptoms without causing harmful side effects. An allergist can pinpoint what’s causing all that sneezing. He or she may prescribe stronger drugs or even allergy shots. Shots expose the patient to tiny amounts of the matter causing problems. Over time, the body becomes less sensitive to pollen and other symptom triggers. Blue Cross and Blue Shield of Texas can help. For more info on allergies, log on to Blue Access® for Employers to see Blue Resource materials, including additional information on seasonal allergies.

A Division of Health Care Service Corporation, a Mutual Legal Reserve Company, an Independent Licensee of the Blue Cross and Blue Shield Association.