Monthly Archives: November 2013

20 Things I’m Thankful For

Around this time of year, I often find myself reflecting on life. What has happened this past year, where I want to go next year and how I fit into the world.  This often happens when I am on the bike (as all you have time to do is ride and think), but this year I feel compelled to share what swirls around this old noggin with you.

If you’ve known me for any amount of time, you know that I “try” to see the good in things.  Despite reality, I try to “assume positive intent” of others and their actions.  I attempt to take nothing for granted and show appreciation for all that I have in life.  While I didn’t grow up in the lap of luxury, our family didn’t struggle either.   So with that, as I sit here on Thanksgiving, I wanted to share just a small fraction of the things I am thankful for.

Life  People take life for granted; the frailty, the certainty that it will one day end, the marvel of breathing without conscious thought.  To that end, life is an extremely precious gift that can be taken away before one’s had the opportunity to fully experience it.  With that, I am grateful for each day that I have walked on this Earth. 

My Immediate Family  The world can be a cruel place.  Sometimes, you feel as if you are standing alone and no one gives one iota about you.  But then there is your family. To my mom, dad and sister, I am so fortunate to have had them (and still do) in my life. 

The Rogers Side of the Family

The Rogers Side of the Family

My Extended Family  When you marry your spouse, you marry into their family.  If you’re lucky, it’s like gaining a whole new set of friends.  To all of those new friends (okay, not so new as I’ve been married 7 years now), I am fortunate to call you part of my family. 

The Wilson Side of The Family

The Wilson Side of The Family

My Wife I could write a book about this woman.  When you’re searching for a person to share your hopes, passions, dreams and life with, you can only hope that you’ll meet a person who meets a fraction of what you are looking for.  I was lucky enough to find someone who vastly exceeded them.  Aaronita is my rock and quite possibly the strongest woman I know besides my mother.  To that end, I wouldn’t be able to do or attempt half of what I do without her support.  So to you babe, I am extremely thankful that I had the opportunity to meet you and for me to be a part of your life. 

The Love of My Life

The Love of My Life

My Daughter  She is my love and my life was forever changed on that August 15, 2009.  She makes me strive to be a better person so that I can be the father that she deserves.  Kiddo, Dada loves you! 

The Light Of My Life

The Light Of My Life

Love  The simple act of being kind to a fellow human being is sometimes all it takes to help that person make it through a difficult situation.  I am fortunate for all the love that people have shared with me. 

My Upbringing  I grew up in a loving household with two parents that cared and a sister with whom I could share my grief with.  Not everyone has/had this in their life.  I’m thankful that I did. 

My Education  I didn’t go to the fanciest schools.  My parents did the best for me with what they had.  Each one of those schools I attended taught me something; whether it was book knowledge or life lessons.  Whether it was St. Thomas the Apostle, De La Salle, Truman State University or DePaul University, I value all the opportunity I was given.

Opportunity  What is the difference between someone who lives in Beverly Hills, the barrio, the ghetto, and Kenya?  Nothing.  But what determines how their life unfolds is intrinsically tied to the opportunities they are presented with.  Not everyone is dealt the same deck of cards.  I am happy for the one I got and the hand I’ve been able to play. 

My Corporate Career  I’ve worked with lots of people in various companies over the years.  Each one of them taught me something which made me into what I am currently.  I’m fortunate for all that I was able to experience. 

My Company  It evokes a certain feeling of pride every time I see our company’s name.  To know that it’s something that I helped create, something that serves a purpose bigger than myself, something that helps others in this world; that makes me feel proud and honored. 

Our Clients Without their trust, confidence and patronage, we wouldn’t have a company at all.  So to all of you, thank you from the bottom of my heart.

Nature  This world is a beautiful place filled with wonderful people, places, animals and other things.  I try to do my part to not destroy it and preserve it so it’s around for Pilar to enjoy.  But that aside, I am lucky to have seen some of the many sights that our amazing planet has to offer.  I can only hope that I get to see/enjoy much more in the future.

Me and Mother Nature Starting The Day

Me and Mother Nature Starting The Day

Health  Things could always be worse.  Be grateful for what you have because one day, health will fail us all.

Busted Up As Pilar Would Say

Busted Up As Pilar Would Say

Friends  I don’t keep a large circle of friends; just a few close ones.  Blame the loner in this Aquarius!  But I am extremely grateful for everyone that I have in my life, no matter how large or small the extent.

Support  It makes me smile when people say that they are “self made” or that they “did it all on their own.”  While that is somewhat true, we’ve all received an extended hand at one point or another.  To anyone who has ever helped me (like the good Samaritan who called the ambulance when I crashed and knocked myself out on the bike path), I am appreciative of you.

The United States  Sometimes this country is like the drunk Uncle in your family.  You love them, but sometimes they drive you crazy.  In the end, this county is still one where one can attempt to achieve their dreams and live a life that others in this world cannot.  Thus, I am thankful to call this place home.

God  You don’t have to be religious to believe in a higher power; I’ll be the first to admit that I’m not overly religious.  Yet I do believe that I’ve been blessed as all my “chuch folk” would say (no that is not a typo).  God, Yahweh, Buddha, Muhammad, The Universe (or whatever you want to call it) and I have a relationship.  I am thankful for that.

The Necessities  I have a roof over my head, clothes on my back and food in my belly.  Tyler Durden said it best with this statement: “Advertising has us chasing cars and clothes, working jobs we hate so we can buy s@&! we don’t need.”  In the end, I am happy for what I have because it’s all that I really need (and then some). 

To Be Employed  In these trying times, people who have had their entire existence defined by where/who they work for are struggling to cope with extended periods of unemployment.  To all of you, keep up the good fight and if opportunity doesn’t knock, build a door and then kick that joker in!

Understanding The 1031 Exchange

Most real estate investors have at least heard of the 1031 exchange, but very few have actually completed such a transaction.  The 1031 exchange is a powerful tool to have in your creative real estate arsenal, as it allows you to dispose of one property and acquire another without paying capital gains tax on the property you are disposing of.

However, a 1031 exchange requires careful attention to the requirements, particularly as they relate to timing, in order to avoid potential ghoulish dealings with the IRS.

To start with, it is important to understand exactly what a 1031 exchange is.  Named after the section of the Internal Revenue Code under which it resides, a 1031 exchange is the swap of one asset for another similar asset.  In other words, in order to take advantage of this tax section, the type of property swapped must be of a similar “nature or character.” For example, livestock of different genders are not considered like-kind property.

Fortunately, this is not much of an issue with real estate, as the code allows for the exchange of any real property for any other real property.  The property (generally) must be a business or investment asset, meaning the property generates revenue or helps in generating revenue.  Typically, these properties will be warehouses, offices or rental homes.  Primary residences and other property that do not generate regular income do not qualify, such as a second home or vacation home.

Properties located inside and outside the country cannot be exchanged for each other.  Also, real property cannot be exchanged for personal property, such as a house for farm equipment.  Lastly, personal residences are not eligible for like-kind exchanges; the property must have been an investment or business property to qualify.

One of the nicest features of the rule is that the properties do not have to be of similar “grade or quality.” In other words, it’s perfectly legitimate to exchange a house in much need of repairs for a property that is in pristine condition.  The like-kind exchange is an ideal vehicle for trading up properties without paying capital gains taxes.

Timing is a key element to a successful 1031 exchange.  In order to qualify for the capital gains deferral, the decision to treat a property sale as part of a 1031 exchange needs to be made before the closing date of the sale of that property.  Then, the seller must identify the property to be acquired in the exchange within 45 days of the closing date of the sold property.  The new property must then be acquired within 180 days of the date that the prior property was sold.

The 1031 Exchange Process Outlined Visually

The 1031 Exchange Process Outlined Visually

When it comes to identifying the replacement property, there are some interesting rules, and you can pick which rule you want to follow.  The property needs to be of equal or greater value, but you can select multiple properties as potential properties to buy, subject to the following rules:

1.  You can select up to three distinct properties as possible replacement properties for the exchange, regardless of their value, OR…

2.  You can select any number of properties, as long as their total fair market value does not exceed double the value of the property you sold, OR…

3.  You can select any number of potential properties to buy, as long as the fair market value of the property you eventually close on within the 180 day window is at least 95% of the value of the property you sold.

In order to protect the “integrity” of the like-kind exchange, the IRS requires that you use a qualified intermediary in order to complete the transaction and qualify for the capital gains exclusion.  The qualified intermediary escrows the proceeds from the sale of the first property, and ensures that the funds are only used to acquire a like-kind property.

The qualified intermediary works with your title company, escrow company, or closing attorney to facilitate the transaction.  The key element of this part of the transaction is to ensure that you never actually obtain receipt of the funds from the property sold, and there is no record of it passing through your own personal accounts.

Normally when an investment property is sold, you must recapture the sum total of the depreciation you have claimed on the property.  In other words, your taxable capital gains include not only the actual appreciation in the property’s value, but also the amount that you deducted as depreciation over the time you owned.

A beautiful benefit of the 1031 exchange is that there is no depreciation recapture required.  Instead, the accumulated depreciation in the old property affects your basis in the new property you are buying in the exchange.

Since the purpose of the like-kind exchange is to avoid paying capital gains tax on appreciation of properties, there is no benefit to using a 1031 exchange on a property on which you have a loss.  By selling a property for a loss, a portion of that loss becomes deductible.  The 1031 exchange rules do not recognize losses as an adjustment to the basis in the newly acquired property, so there is no benefit in using this vehicle for that purpose.

Our hope is that this article has provided you with enough information to make the decision of when to use the 1031 exchange rules to your benefit.  As with all things, however, be sure to consult with a licensed tax professional for advice regarding your specific transaction, and remember that you must use a Qualified Intermediary in order to complete the transaction.

Are you are thinking of disposing of your property and have questions?  Why not give us a call?  We are here to help, and only a phone call away!

How to Obtain 501(c)(3) Tax-Exempt Status

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During the course of an average year, we often get asked if we help clients set up nonprofit organizations.  We also get asked how much it cost; to which we often respond, it depends.  Why you may ask?  Well, depending on the activities that your organization will conduct, it changes the amount of detail that you must provide in the application.  In this post, we’ll provide you with a general overview of how to go about obtaining tax exempt status.

Obtaining Tax-Exempt or 501(c)(3) Status
Most of the real benefits of being a nonprofit stem from your 501(c)(3) tax-exempt status.  These include, but are not limited to the tax-deductibility of donations, access to grant money, and income and property tax exemptions.  To apply for tax-exempt status, you must complete IRS Form 1023Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.  Completing this form can be a daunting task because of the legal and tax technicalities you’ll need to understand.   Thus, we suggest consulting with a CPA, attorney or other professional who is experienced in preparing this form.

When to File For 501(c)(3) Status
To get the most out of your tax-exempt status, you’ll want to file your Form 1023 within 27 months of the date you incorporate.  If you file within this time frame, your nonprofit’s tax exemption takes effect on the date you filed your articles of incorporation.  Thus, all donations received from the point of incorporation onward will be tax deductible.  If you file later than this and can’t show “reasonable cause” for your delay (i.e. convince the IRS that your tardiness was understandable and excusable), your group’s tax-exempt status will begin as of the postmark date on its IRS Form 1023 application.

How to Prepare Your Tax Exemption Application
Form 1023 is divided into 11 parts.  Illustrated below is a brief overview of each of the 11 parts so you can familiarize yourself with the type of questions you’ll be asked to address.

Identification of Applicant  This section tells the IRS about your organization.  It asks for basic information like the name of your nonprofit corporation, contact information, and when you filed your articles of incorporation.  Your nonprofit must have a federal employer identification number (EIN) prior to applying for 501(c)(3) tax exemption, even if it doesn’t have employees.  Furthermore, if your organization held an EIN prior to incorporation, you must obtain a new one for the nonprofit.

Organizational Structure  This section requires that you attach a copy of your articles of incorporation and your bylaws.

Required Provisions in Your Organizing Document There are certain clauses that you must have in your articles of incorporation in order to get your 501(c)(3) exemption:

  • A clause stating that your corporation was formed for a recognized 501(c)(3) tax-exempt purpose (e.g., charitable, religious, scientific, literary, and/or educational)
  • A clause stating that that any assets of the nonprofit that remain after the entity dissolves will be distributed to another 501(c)(3) tax-exempt nonprofit – or to a federal, state, or local government for a public purpose

In this section, you state where these clauses can be found in your articles (by page, article, and paragraph).

Narrative Description of Your Activities Here you provide a detailed, narrative description of all of your organization’s activities (past, present, and future) in their order of importance (i.e. in order of the amount of time and resources devoted to each activity).  For each activity, explain

  • the activity itself, how it furthers an exempt purpose of your organization, and the percentage of time your group will devote to it
  • when it was begun (or when it will)
  • where and by whom it will be conducted
  • how it will be funded (the financial information or projections you provide later in your application should be consistent with the funding methods or mechanisms you mention here).

Compensation and Financial Arrangements  The purpose of this section is to prevent people from creating and operating a nonprofit for the sole benefit of its founders, insiders, or major contributors.  You’ll need to give information about all proposed compensation to, and financial arrangements with initial directors, initial officers, trustees, etc.

Members and Others That Receive Benefits From the Nonprofit  If your nonprofit will provide goods or services as part of its exempt-purpose activities, you must report this on Form 1023.  The IRS wants to ensure that your nonprofit is set up to provide goods and services to all members of the public — or at least a segment of the public that is not limited to particular individuals.

Your History If your nonprofit is a “successor” to an incorporated or preexisting organization the IRS wants to know this.  Your nonprofit is most likely a successor organization if it has:

  • taken over the activities of a prior organization
  • taken over 25% or more of the assets of a preexisting nonprofit
  • been legally converted from the previous association to a nonprofit

Details on Your Specific Activities This part asks about certain types of activities, such as political activity and fundraising, that the IRS scrutinizes closely.  For example:

  • 501(c)(3) nonprofit organizations may not participate in political campaigns
  • Certain types of fundraising are restricted, including bingo and gaming activities, fundraising for other nonprofits, or using a professional fundraiser

Financial Data All groups seeking 501(c)(3) exempt status must provide a statement of revenues and expenses and a balance sheet.  An organization that has been in existence for five years or more must provide financial data for its most recent five years.  Other groups must provide financial data for each year they have been in existence and good faith estimates for future years for a total of three or four years, depending on how long the organization has been in existence.

Public Charity or Private Foundation This section relates to your nonprofit’s classification as a public charity or private foundation.  Public charities, which include churches, schools, hospitals, and a number of other groups derive most of their support from the public or receive most of their revenue from activities related to tax-exempt purposes.  Most groups want to be classified as a public charity because private foundations are subject to strict operating rules and regulations.

Fee Information You must pay a fee when you submit your Form 1023 application.  Check the IRS website for user fees that vary depending on your nonprofit’s gross receipts.
 

10 Tips For Deducting Charitable Contributions

This week we received a question from a taxpayer about how to determine the deductible portion of a silent auction item purchased at a charitable event.   While the answer is pretty clear, it reiterated to us just how confusing deducting that charitable contribution/donation can be to a taxpayer.

Charitable contributions made to “qualified organizations” may help lower your tax bill.   But what is considered a qualified charity and what type of documentation do you need to keep?  Here are our 10 tips to help ensure your contributions not only help the charity, but reduce your tax liability on your tax return.

  1. First and foremost make sure you are giving to a qualified organization.   Also, note that you cannot deduct contributions made to specific individuals, political organizations and candidates.  Want to check and see if an organization is qualified?  Use this link.
  2. In general, an individual may deduct contributions to most charitable organizations up to 50% of his or her adjusted gross income (AGI), but that limit is changed to 30% of their AGI for other organizations.  When you look up a charity you can click on “deductibility status” and it will tell you which percentage applies to that particular charity.
  3. To deduct a charitable contribution, you must file Form 1040 AND itemize deductions on Schedule A.  Thus, if you are taking the standard deduction, none of your charitable giving will benefit you from a tax perspective.
  4. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction record or a written communication from the organization.  The communication should contain the name of the organization, as well as the date and amount of the contribution.  For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
  5. If your contributions of cash or property equal $250 or more, you must have a bank record, payroll deduction record or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift.  If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283 to your return.
  6. Donations of stock or other non-cash property are usually valued at their fair market value.  Clothing and household items must generally be in good used condition or better to be deductible.
  7. Fair market value is generally the price at which property would change hands between a willing buyer and seller.
  8. Like our friend who purchased an item at the silent auction, if you receive a benefit (e.g. merchandise, tickets to a ball game or other goods and services), because of your contribution, then you can only deduct the amount that exceeds the fair market value of the benefit received.
  9. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
  10. If you donate a vehicle, you most certainly will have to fill out Form 8283 as well as get a letter from the organization.  However, there are additional conditions that you may have to meet.  You can find them here.