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Meeting my CPA

September 5th, 2006 by Kenric

I met with my CPA last week to forecast my taxes for 2006.  I think that most people should do that during the tax year at least once.  If you meet with your CPA before the year is over, you will still have a chance to do things to reduce your taxes.  Giving your financials to your CPA in March of 2007 doesn’t really do you any good.  It’s too late.

The reason I met with my CPA now is because I started this new job as an independent contractor.  I wanted to find out what expenses I should be keeping track of, what I can and cannot deduct and also estimate what I would owe come April 2007.

The biggest eye opening issue for me was the sale of my condos earlier this year.  As you can see, I estimated my taxes to be $34,000 and my CPA’s calculation came very close to that amount.  The one thing I forgot to take into account is that the profit on my condos (about $170k) is added to my Adjusted Gross Income (AGI) for the year.  For a single person the government begins to phase out your deductions at $150,000 AGI.  Because of my condo sales and my new job I am unable to take full if any deductions from my real estate holdings.

In fact, I will not be able to write off all the interest on my primary home. I will not be able to “lose” money on my rentals to offset my income.  My real estate tax benefits basically went out the window for this year.

The good thing is that I’m learning this now.  If I am categorized as a real estate professional I will be able to take my real estate deductions because there is no phase out on deductions for them.  I feel that I can qualify as a real estate professional based on their requirements.  I have been making a living in real estate for the past 2 years.  I hope the fact that I just took this independent contractor job doesn’t disqualify me from qualifying.  I have 3 months to get my ducks in a row because this could mean big tax savings!

Another way I can reduce taxes but end up spending more money is to incur business expenses.  I could get a new SUV to drive around to my construction sites.  I could get a new laptop, new cell phone, PDA, etc…  However, these things don’t really make sense to me.  I can spend $100 to save $33 on taxes.  I guess if I really needed any of these things it would be worth it.

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