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Heads Up Commercial Real Estate Brokers – Here are the 7 Hottest Tax Audit Triggers

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Last month we had an incredible webinar session regarding Building Wealth Beyond the Commission. During the event, 100’s of commercial real estate professionals convened for 75 minutes of wealth building strategies and insightful tax treatments of common elements to the 1099 (independent contractor), which most of you are.

My co-host, Kevin Bassett, CPA, who is not only an accountant, but a master “tax strategist” – shared how you can make the most of your hard-earned commission income. Kevin has clients across the country who depend on his expertise, and Kevin and I have elected to make this content available to you. However, with tax season here – he is a little busy for the next few weeks. We commit to get you access to all these strategies and more, soon.

In the interim, it is tax season – and no doubt you are either scurrying to get your taxes complete, or possibly planning yet another extension. Regardless, you should be aware of the possible triggers for an audit.

According to Kevin, here are the 7 hottest tax audit triggers of 2016. Please note, Kevin only outlined the 7 triggers – the commentary is my application to your world as a commercial real estate professional.

1. Subcontractor vs. employees – Certainly a major issue for owners of brokerage firms; but also an issue for the individual commercial real estate professional who has, or is building a team. The guidelines are both comprehensive and clear.

2. Schedule C – business – Many individual commercial real estate professionals rightfully structure an entity around their practice. But, depending on how you are structured – this is a potential read flag depending on what you declare.

3. Cash jobs and commingling funds – More of an issue for the brokerage owner than the individual agent; and certainly more a residential element. However, don’t be fooled – just as many commercial property management issues and activities fall in this category.

4. Vehicles – Whether you are leasing your vehicle for work, or you own it – if you are going to write off any element (especially mileage) you need to have a detailed record of everything.

5. S-Corp officer’s compensation – See #2 above. This depends on how you are structuring your entity for your commercial real estate practice.

6. W-2 errors – If you have employees, this is where professional payroll services, or even employee leasing can be of great help. Your expertise is selling, leasing, managing, financing and/or operating commercial real estate – not processing payroll. This a major trigger for audits.

7. Hobby Losses – You would be amazed at some of the “hobbies” I have heard about from the commercial real estate community. More so, how some have positioned these hobbies as client expenses and/or losses. Before you write off that ammo for your recent quail hunt where you invited a client who did not show – think again.

I know I need to be clear here. I am not a CPA, tax accountant, or financial planner. I am only sharing, and expanding on these 7 triggers that were shared with me. Please seek professional tax and/or financial advice when reviewing this material and how it impacts you. Scary that I need to write this, but true.

It comes down to this… There are many legal strategies for you to build wealth beyond your hard-earned commissions. There are also several, specific approaches that can trigger an audit. The more you know, the better you will be positioned to build your wealth and avoid any visits from the IRS. As we all know – there is only one winner in an audit, and it is rarely the one who is being audited.

Happy Tax Season Everyone!

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