Maximizing your tax deductions as a real estate broker or agent is not solely about finding things to deduct. While that is a large part of it, also involved is being knowledgeable about what is deductible AND then tracking said deductions. I mean, if you fail to track what you can deduct, then how can you actually deduct it? Sure, you can estimate or even make it up. But guess what? That is a sure-fire way to have the IRS disallow the expense if they decide to audit your return.
To ensure that you don’t miss any business related expenses paid for during the tax year, it’s recommended that one use a tax organizer. Feel free to use our handy dandy tax organizer (checklist) as a starting point.
From there, make sure that you aren’t forgetting any of the expenses typically deducted by those in your profession. What are those? While this list is not entirely inclusive or comprehensive, it does cover most of the major items:
Copy Editor Fees
Email Marketing and Newsletters
Internet Ads (Google, Facebook, etc.)
Print Ads (Newspapers and Magazines)
Web Hosting and Domain Fees
Taxi, Train, Subway, Bus
Cell Phone Service
Hard Drives/Thumb Drives
Family Wages (e.g. kids/spouses)
Client Refreshments (Coffee, Water, etc.)
Online Storage of Business Files
Chamber of Commerce
E & O Insurance
Tax Prep Fees
Defined Benefit Plan
Simplified Employee Pension (SEP)
Training & Improvement
Books (Sales Books, Real Estate Books, etc.)
Looking for more ways to save on taxes?
Jared’s latest book, The Real Estate Brokers Little Black Tax Book is chock full of tips and strategies to help you cut your tax bill. Sure, you can buy it by clicking the book image at the top of this page, BUT, if you head over to this super secret page, you can get some free goodies. Like see a video where Jared discusses the book and get the free white paper, The 10 Tax Issues Broker Face. So what are you waiting for? The sooner you take action, the sooner you can keep more of your hard earned commissions in YOUR pocket and out of the hands of Uncle Sam!
When a homeowner wants to sell their home, but it is encumbered with an Federal tax lien (i.e. IRS Form 668(Y)), they might feel as if all hope is lost. But alas, it isn’t. In this post we’ll outline what to do if you are facing this situation and the exact steps to take.
The first thing to note is that if there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance it. Yet, there are a number of options to satisfy the tax lien. For some, if you have equity in your property, the tax lien can be paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing. For others, if the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Additionally, taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution’s lien to allow for the refinancing or restructuring of a mortgage. Let’s now look at what happens under each scenario.
Proceeds Satisfy The Debt – Get A Tax Lien Payoff
If the amount received from the sale will satisfy the amount of IRS debt owed, then one simply needs to obtain tax lien payoff amount.
An updated lien payoff or balance due amount may be requested from the IRS Collections Advisory Group. This unit will issue a payoff letter to taxpayers or to third parties such as taxpayer representatives, lenders, and escrow or title companies. The letter will indicate the current amount that must be paid before the IRS releases the lien.
Third parties must submit their request in writing accompanied by a properly completed Form 8821, Tax Information Authorization, signed by the taxpayer. Without a Form 8821, the IRS cannot disclose taxpayer information to third parties. The Form 8821 must address each tax period on the notice of lien and be received by the IRS within 60 days after the taxpayer signs and dates it.
Payoff requests can be made by phone (1-800-913-6050), fax (1-855-753-8177) or by mail sent to:
Payoff computations may take up to 14 calendar days to process. Two copies of all payoff letters are mailed to the requester. One copy of the payoff letter must be returned with the payment to ensure proper application and timely release of the lien. To ensure expedited processing the payment must be sent to the address identified on the payoff letter. Payments should be made payable to the United States Treasury.
Proceeds Don’t Satisfy The Debt – Obtain Lien Subordination or Discharge
What is a discharge or subordination and how can it help you sell or refinance your property? A discharge removes an entire asset (collateral) from being covered by the tax lien so that it may transfer to the new owner free of the lien. To apply for a Lien Discharge, one completes IRS Form 14135. A subordination is used to put the IRS’ position in 2nd priority. It is used to “unlock” an asset so that another creditor can be paid before the tax lien is paid (e.g. bank loan refinancing). To apply for a Lien Subordination, one completes IRS Form 14134.
Now let’s look at the specific steps on how to complete each application. To help you with the application process, you might want to review IRS Publication 783 or IRS Publication 784, which contain instructions on filling out the forms, have the application forms themselves, along with FAQ’s.
The first item of note is that the application for discharge or subordination is handled on a first come, first served basis. As such, one needs to get either application to the IRS at least 45 days before the sale or loan settlement meeting. If the Notice of Federal Tax Lien is discovered late, or the application isn’t submitted in time, the sale or loan could be delayed. If you’re trying to avoid foreclosure, be sure to indicate this on your application and the IRS will do its best to expedite your request.
Sections 1, 2, and 3 of either the discharge Form 14135 or the subordination Form 14134 are self-explanatory.
If you are using a representative, fill in Section 4, and be sure to indicate who is being represented. While having a representative is not required, if you hired someone to represent and speak on your behalf, attach IRS Form 2848. Both of you must sign this form. If you want the IRS to share your information with someone else, you would attach IRS Form 8821. If you are attaching one or both of these forms, check the “yes” box in Section 4.
In Section 5, you would fill in the contact information for your finance company.
The information in Section 6 will vary depending on the type of transaction. If you are selling, use Form 14135 and enter the sales price. If you are refinancing or getting a loan, use Form 14134 and enter both your existing and new loan amounts.
Section 7 asks for your basis for discharge or subordination. Basically, you need to check the box that best addresses what you would like the IRS to consider as the reason why they should approve your application.
Section 8 for either application form asks for a description of your property, which could be either real estate or personal property such as art work, a boat, a plane, or your business receivables. Don’t forget to provide the property address.
For Section 9 of Form 14135, when you are selling property, the IRS requires a professional appraisal, which is generally part of the closing package and a second type of value estimate. Form 14134 Section 9 does not call for a professional appraisal for your refinance or loan. Check the box for the type of value estimate you are including.
Sections 10 through 14 are a checklist of the attachments which you must include with either the discharge or subordination application form.
These next two sections only pertain to Discharge Form 14135.
If your property will be sold in an escrow sale, with creditors paid from the escrow, the IRS needs your draft escrow agreement with your Form 14135. Be sure to check the “attached” box in Section 15.
Section 16 of Form 14135 is if you bought property with a lien attached where you are not the taxpayer and you checked 6325(b)(2)(A) or (B) as your basis for discharge in Section 7.
The final section on both forms is the Declaration. Here is where you must sign and date your application under penalties of perjury.
At this point, your form should be complete. Attach all your supporting paperwork and send your application package to one of the IRS Advisory Offices. The correct mailing address of the IRS Advisory Office will be found in IRS Publication 4235. It will be the one for the state that the Notice of Federal Tax Lien was filed in.
The IRS Advisory approves or denies your request based on your application and comparison with federal and state property rules. If the IRS approves your application, they will send you your discharge or subordination certificate, based on what box you checked, or best applies to you in Section 7. If, however, the IRS denies your request, or you disagree with the IRS valuation in a commitment letter, you can request an appeal through the Advisory office using IRS Form 9423, Collection Appeal Request. IRS Publication 1660, Collection Appeal Rights, explains your appeal rights.
Need Help Removing A Tax Lien So A Property Can Sell?
We know that having a notice of federal tax lien a property raises many complex financial issues. Our in-depth coverage of the subordination and discharge application forms was designed to give you insight into what is needed to be able to successfully navigate through the application process. However, as this article should not be construed as advice, one is advised to check IRS publications, talk to the IRS Collections Advisory Group or contact a tax advisor for more details.
Don’t feel like doing any of the above? We don’t blame you! So, if you are trying to sell your home, are a real estate agent or title company that just found out that a deal has a tax lien on it, or are concerned with a deal closing on time, contact us NOW.
We can work with the IRS (so you don’t have to) so that the deal can close. Nothing feels better then a homeowner selling their home and getting the IRS debt monkey off their back or a real estate agent getting a commission check from a deal that was in jeopardy!
As a broker, your primary job is marketing. Marketing yourself, your services, your client’s properties… you get the idea. Once the marketing is done, you then move on to the sales side of the house. You know, getting the clients to fall in love with the property, dealing with objections, bringing them back to reality, and ultimately getting the parties to sign a contact. Once those two things happen, you then move on to the technical part of your job. That is, the actual part of dealing with the real estate transaction itself and wrangling all the other parties that become involved.
Yet what was not obvious in the three roles mentioned above is this: you are also actually running a business. Furthermore, running a business is not what your pre-licensing class trained you to do. Still further, you were not trained on taxes and how they impact your business or your client’s scenario. To that end, it is your accountant’s job to help you understand and navigate these items. So, if you are going to select a partner to help you in this area, would it not make sense to find one who is experienced? Given the above, that is where this book and I enter the picture!
My goal for writing this book is three-fold. First, I want to help you understand how taxes impact you both from the standpoint of being a business owner as well as from the perspective of reducing them. It is important for all taxpayers to understand their responsibilities, the associated rules, and what can be done within those rules to legally reduce their tax liability. Second, like CPAs and other tax professionals, brokers are advisors to their clients. The better equipped you are to help your client as it relates to certain tax aspects of their transaction, the more efficiently you can address problems and close deals. Besides who does not like to close more deals? No broker that I am aware of!
Finally, tax problems are commonplace with those who earn money where no income tax withholding occurs. Think of anyone who is paid via cash (or check) or as an independent contractor (i.e. self-employed): dentists, brokers, attorneys, truck drivers, construction contractors, etc. I have known a fair number of brokers who have tax problems. As a CPA authorized to represent taxpayers before the Internal Revenue Service (IRS), I help them solve those issues. Not only do I assist them in resolving their issues, but also those of their clients so that deals can close. The key thing to know is that no matter how bad it initially seems, I have never been unable to help a client solve their tax debt matter.
Check out the video below to hear more and look below the video on ways that you can place an order.
You can also view this video on our YouTube Channel here.
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