Renting Out a Vacation Home

Tax rules on rental income from second homes can be complicated, particularly if you rent the home out for several months of the year, but also use the home yourself.

There is however, one provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free.

Known as the "Master's exemption", because it is used by homeowners, near the Augusta National Golf Club in Augusta, GA who rent out their homes during the Master's Tournament (for as much as $20,000!). It is also used by homeowners who rent out their homes for movie productions or those whose residences are located near Super Bowl sites or national political conventions.

Tip: If you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation--as long as it's two weeks or less. And, although you can't take depreciation or deduct for maintenance, you can deduct mortgage interest and property taxes on Schedule A.

In general, income from rental of a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. You should also keep in mind that the definition of a "vacation home" is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS.

Further, the IRS states that a vacation home is considered a residence if personal use exceeds 14 days or more than 10% of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

Example: Let's say you own a house in the mountains and rent it out during ski season, typically between mid-December and mid-April. You and your family also vacation at the house for one week in October and two weeks in August. The rest of the time the house is unused.

The family uses the house for 21 days and it is rented out to others for 121 days for a total of 142 days of use during the year. In this scenario 85% of expenses such as mortgage interest, property taxes, maintenance, utilities, and depreciation can be written off against the rental income on Schedule E. As for the remaining 15% of expenses, only the owner's mortgage interest and property taxes are deductible on Schedule A.

Questions about vacation home rental income? Give us a call. We'll help you figure it out.

Jake's Wheels Event

On Tuesday evening, June 25^th, the Bentley Foundation, in partnership with Vanity Restaurant & Lounge, hosted an event to benefit Jake’s Wheels.

Jake is a wonderful, fun loving boy who suffers from a congenital disorder.  Jake’s Wheels is an organization that raises funds to ensure he has the quality of life every child should have. 

 

It has been our pleasure to meet Jake and his family and to help them meet their fundraising goals.

Jake's Wheels Invitation

Let's Support This Great Cause:  Jake's Wheels

 

Bentley Foundation was created to manage charitable giving for the Bentley Group affiliates.  Our internal fundraising activities along with participation in a wide variety of charitable events, provide the opportunity to fulfill the Foundation's mission.   One such charitable event is Jake's Wheels .   Jake is a sweet and loving 11-year old boy who was born with congenital hydrocephalus.  At birth, he had a bleed in his brain that caused permanent brain injury.  Due to this injury, Jake has suffered serious medical conditions.  He is also non-ambulatory and requires complete assistance for all of his daily needs and care.   Jake loves to be outdoors listening to birds, going for walks and hearing his brother play ball.  He loves music, reading stories and using toys and art materials on his tray.  In order to continue and preserve Jake's quality of life, he and his family are in need of a handicapped accessible vehicle.  This vehicle will help Jake do the things he loves the most, such as attending baseball games, going to the zoo or children's museum, the beach or just a plain walk in the neighborhood.    Jake now weighs 65 pounds and is still growing!  As Jake continues to grow it will be more difficult to get him to and from the places and the people he loves.  An appropriate vehicle will provide the protection and freedom that Jake and his family need to keep their quality of life and family togetherness.   You can visit Jake's website by clicking here and please save the date, Tuesday, June 25th, to attend a fundraiser sponsored by the Bentley Foundation.  Members of Bentley Foundation will be "guest" bartenders at Vanity Restaurant and Lounge (a Firm client) in Providence.  ALL tips raised that evening will go directly to Jake's Wheels.   Please support the Foundation's efforts by stopping by!  Members of the foundation and friends, John Rainone, Lou Amitrano, Kim Sciuto along with her friend, Keri, and Lori Conaty will be the guest bartenders, serving between the hours of 5:30pm and 9:00pm.  In addition,  SURPRISE celebrity bartenders are expected to make an appearance.   Please join us for a night that's sure to be fun, while supporting this GREAT cause!   Here is a link for directions:  Vanity Restaurant and Lounge.

Simplified Option for Home Office Deduction in 2013

If you're one of the more than 3.4 million taxpayers who claimed deductions for business use of a home (commonly referred to as the home office deduction), you might be interested in the new simplified option available for taxpayers starting on, or after, January 1, 2013. The new optional deduction is capped at $1,500 per year based on $5 a square foot for up to 300 square feet. It is expected to reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually. Currently, taxpayers claiming the home office deduction are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form. Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible. Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

If you need more details about the new simplified home office deduction for tax year 2013, don't hesitate to give any one of the Business Resource Center (BRC) team members below a call.  We're here to help.     401.921.2000

Independent Worker? Don't misclassify

Classifying a worker  as an employee or an independent contractor is based on facts and circumstances.  Misclassifying a worker as independent contractor can result in substantial fines and penalties.  Linked below is a recent article from the Wall Street Journal on this very topic.  Although the Internal Revenue Service offers us some "common law rules," determining whether a worker is entitled to a W-2 or 1099 can be confusing. <Wall Street Journal Article>* Common Law Rules Facts that provide evidence of the degree of control and independence fall into three categories: Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no "magic" or set number of factors that "makes" the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.  Attached is an IRS publication offering further guidance. http://www.irs.gov/pub/irs-pdf/p1779.pdf If you pay independent contractors, you may have to file Form 1099-MISC, Miscellaneous Income, to report payments for services performed for your trade or business.  The IRS link below offers further guidance on determining your filing requirements. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Paying-Independent-Contractors

Should you have any questions, please feel free to contact your trusted advisor at DiSanto Priest & Co.  401.921.2000

NEXUS…..Are You Connected to Multiple States????

In today's business environment many companies have become involved in interstate commerce, offering their products and services to customers beyond their home state.  As companies expand their businesses over state lines, either physically or over the internet, there is a strong likelihood that their state filing requirements have also expanded into these states. 

"Nexus" for tax purposes is the amount or degree of business activity that must be present before a state can impose their taxing jurisdiction on a taxpayer.  These levels are defined by state statutes and case law and vary from state to state.  There are differing nexus standards for required filings in the areas of registrations, payroll, net worth, and sales, as well as franchise and income taxes.

A "Nexus Study" will identify  whether the normal business activities of your company creates state tax filing requirements based on the various nexus standards.  We can help you make the necessary assessments of your multi-state business activities.

Should you have any questions, please feel free to contact your trusted advisor at DiSanto Priest & Co.  

401.921.2000

The Business Resource Center-An Introduction

Greetings!  We are sending this email to you not only to introduce ourselves but also to provide you with pertinent information concerning your business.  A brief introduction of who we are and what we do is provided below, but to get an idea of the full extent of the services we provide, please click on the link below.

The DiSanto, Priest & Co. Business Resource Center (BRC) provides specialized services for all types of small businesses.  We are staffed with accounting professionals with years of experience in both private business and public accounting providing tax, accounting, bookkeeping, controllership and advisory service to a wide variety of businesses.  Our management team has over 50 years of combined experience servicing small firms.  Click Here for BRC Services. 

>>Business Alert<<

  

Recently, a number of our clients received an official looking document via the U.S. Postal Service.  It appears to be a request from a State of Rhode Island agency, requesting corporate information and a $125 document fee.  It is not.  R.I. Secretary of State Ralph Mollis announced this past week that this is a scam.  Should you receive this type of communication do not pay or respond with the information requested.

  

Click on the links below for WPRI Channel 12 News Alert and a sample of this misleading letter.  Tomorrow night, Channel 10 is expected to broadcast a story on the scam.

http://www.wpri.com/dpp/news/12_for_action/businesses-beware-new-fee-scams-hit-ri

SAMPLE

 __________________________________________________

If you receive a letter such as this and are unsure of its legitamacy, plase feel free to contact me or your trusted advisor at DiSanto Priest & Co.  

401.921.2000

DiSanto, Priest & Co. cited in RISCPA Article

At DiSanto Priest & Co., our focus is to provide our clients  with the best service possible.  One way we do so, is through a strong commitment to ongoing training and professional education.    

Angela M. Paolino, DiSanto Priest & Co.'s Director of Human Resources, oversees the continuing education program for all firm members.  "Education and  training is a basic tenet to the firm's success and the overall well-being of our staff. In fact, our quality training program has been credited as one of the reasons DiSanto Priest & Co. was recently recognized as one of the Best Places to Work  in Rhode Island!*  Training programs keep our accountants informed and apprised of the latest updates in the profession, and in doing so, we provide our clients with the leading-edge knowledge and guidance they need to succeed." 

Angela was recently interviewed by the Rhode Island Society of Certified Public Accountants on the topic.  Please click the link below to read an excerpt from the RISCPA "What Counts" article.

 

RISCPA's What Counts

As always, should you have any questions, please feel free to contact your trusted advisor at DiSanto Priest & Co.  

    

401.921.2000

IRS Provides Updated Withholding Guidance for 2013

 IR-2013-1, Jan. 3, 2013

WASHINGTON - The Internal Revenue Service today released updated income-tax withholding tables for 2013 reflecting this week's changes by Congress. 

The updated tables, issued today after President Obama signed the changes into law, show the new rates in effect for 2013 and supersede the tables issued on December 31, 2012. The newly revised version of Notice 1036 contains the percentage method income-tax withholding tables and related information that employers need to implement these changes.

In addition, employers should also begin withholding Social Security tax at the rate of 6.2 percent of wages paid following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012. The payroll tax rates were not affected by this week's legislation.

Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers' pay as soon as possible, but not later than March 31, 2013.

Employers and payroll companies will handle the withholding changes, so workers typically won't need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

As always, should you have any questions, please feel free to contact your trusted advisor at DiSanto Priest & Co.  

401.921.2000