Intuit: 5 Different Insiders Have Sold Shares During The Last 30 Days

I just watched the film, "The Counselor" which had a great line, "That this is some sort of coincidence. Because they don't really believe in coincidences. They've heard of them. They've just never seen one."   No, we also don't believe in conspiracies....however it's kind of fun to read what some are thinking, no?  Who knows, maybe this fellow is onto something....exactly what we're not quite sure.....and on that note enjoy the writings of Markus Aarnio who for SeekingAlpha writes:

Summary

• 5 insiders sold Intuit stock within one month.
• The stock was not purchased by any insiders in the month of intensive selling.
• 4 of these 5 insiders decreased their holdings by more than 10%.

Intuit (INTU) provides business and financial management solutions for small businesses, consumers, and accounting professionals in the United States, Canada, the United Kingdom, Australia, India, and Singapore.
(click to enlarge)

Insider selling during the last 30 days

Here is a table of Intuit's insider activity during the last 30 days.

Name	Title	Trade Date	Shares Sold	Option Exercise & Sale	Rule 10b5-1	Current Ownership	Decrease In Ownership
Mark Flournoy	CAO	June 5	1,921	Yes	No	0 shares + 3,744 options	33.9%
Dan Maurer	SVP	June 3	75,000	Yes	No	17,265 shares + 112,812 options	36.6%
Sasan Goodarzi	SVP	May 22	2,111	No	No	3,179 shares	39.9%
Brad Smith	CEO	May 22	6,000	No	Yes	303,937 shares + 600,966 options	0.7%
Daniel Wernikoff	SVP	May 23	18,000	Yes	No	216 shares	98.8%

There have been 103,032 shares sold by insiders during the last 30 days. Brad Smith sold his shares pursuant to a Rule 10b5-1 plan. More details about the Rule 10b5-1 trading plan can be found from this link.

Insider selling by calendar month

Here is a table of Intuit's insider activity by calendar month.

Month	Insider selling / shares	Insider buying / shares
June 2014	76,921	0
May 2014	26,111	0
April 2014	0	0
March 2014	10,000	0
February 2014	100,000	0
January 2014	0	0
December 2013	8,226	0
November 2013	49,000	0
October 2013	0	0
September 2013	195,632	0
August 2013	213,999	0
July 2013	0	0
June 2013	0	0
May 2013	0	0
April 2013	0	0
March 2013	22,782	0
February 2013	154,000	0
January 2013	0	0

There have been 856,671 shares sold and there have been zero shares purchased by insiders since January 2013.

Financials

Intuit reported the fiscal 2014 third-quarter, which ended April 30, financial results on May 20 with the following highlights:

Revenue	$2.4 billion
Net income	$984 million
Cash	$2.6 billion
Debt	$499 million

The five insiders sold their shares after this report.

Outlook

Intuit's guidance is as follows:

	Q4/2014	FY2014
Revenue	$683-$713 million	$4.475-$4.505 billion
GAAP EPS	-$0.10 to -$0.12	$3.08-$3.12

Competition

Intuit's competitors include Automatic Data Processing (ADP), and H&R Block (HRB). Here is a table comparing these companies.

Company	INTU	ADP	HRB
Market Cap:	22.72B	38.38B	8.31B
Employees:	8,000	60,000	2,200
Qtrly Rev Growth (yoy):	0.14	0.07	-0.58
Revenue:	4.43B	11.96B	2.66B
Gross Margin:	0.87	0.49	0.61
EBITDA:	1.50B	2.49B	591.79M
Operating Margin:	0.30	0.18	0.18
Net Income:	844.00M	1.44B	259.30M
EPS:	3.13	3.00	0.83
P/E:	25.54	26.55	36.56
PEG (5 yr expected):	1.71	2.44	1.65
P/S:	5.09	3.17	3.07

Intuit has the highest P/S ratio among these three companies.
Here is a table of these competitors' insider activities this year.

Company	Insider buying / shares	Insider selling / shares
ADP	0	324,383
HRB	0	0

Automatic Data Processing has also seen intensive insider selling during the last 30 days.

Conclusion

There have been five different insiders selling Intuit, and there have not been any insiders buying Intuit during the last 30 days. Four of these five insiders decreased their holdings by more than 10%. Intuit has an insider ownership of 4.68%.

Before going short Intuit, I would like to get a bearish confirmation from the Point & Figure chart. The two main reasons for the proposed short entry are a relatively high P/S ratio, and the intensive insider-selling activity.

How successful businesses utilise their Accounting and Tax departments.

William P.W.Omony MBA Fin. Services  (U.K.) writes:   All businesses aspire to perform at their peak in delivering their client value proposition though not all achieve this objective.

Having worked globally with both SMEs & Big businesses, there seem to be a pattern of how successful businesses do utilise even the simplest of units in the Accounting and Tax services department.

How well a business utilises these departments have significant effect not just on the growth of the business but can also be used to influence the strategic direction of the business.

At a time when public finances are tight and almost every business is being monitored and reviewed as to how much Tax they are paying or how the entity is structured, a well-functioning Accounting and Tax department may be what the entity needs for performance improvement.

We explored how peak performing businesses utilise their Accounting and Tax departments. Here is a brief snap shot,

1. It’s not just about the numbers - In an age of big data, almost all businesses are striving to generate as much information as possible so as to make better decision. Financial data generated by professional Bookkeeping can be a great start to inform decision making within entities. Most businesses use Bookkeeping only as a recording tool for year end reporting and are less concerned about utilising it to inform the entity of what would happen if certain variables like product sales price, sales mix, purchase trends, client buying patterns, customer payment discounts and other variables could have on the way the entity delivers its value proposition. A rethink to incorporate the mind set makes the business better at appreciating the issues behind the numbers rather than the numbers in themselves.
2. Turn compliance into value creation – It’s a global requirement for businesses to file returns and reports which are a reflection of their activities over a period of time. Some of these reports are required by statutory authorities like HM Revenue & Customs & Companies’ House in the UK and IRS in the US. Most such reports are annual and no one bothers to question anything about them until when the 'filing deadline' is approaching. The motivation for most of the questions is to avoid being penalised by the authorities as a result of non-compliance. While some entities prepare quarterly reports to inform the markets of their performance, a little less prepare these reports so as to enhance their performance in delivering better services to their clients. The culture is much worse when working with SMEs who in most cases ask the difficult questions about their financial statements when they are looking for financing. Issues like, how can we strengthen the asset base? What questions might lenders ask of our financial position & operations should we require extra financing? How does short term high/Low debt affect our business performance in both the short and long term? Yet very few try answering these questions so as to improve performance. It’s a well-known that business environments are much more fluid today and becoming even much more with advancement in Technology though its only peak performers that turn the compliance issues in to performance improvement tools.
3. Accounting and Tax driven Organisational strategy – Strategy has for long been a 'thing' for the elite and the ‘chosen ones’ aiming at the C-Suite positions in an organisation. Strategy is making decisions, and on a day to day basis there are many decisions being made within organisations. Accounting and Tax are among the few departments that have to build some relative knowledge of the whole organisation so as to be effective in delivering peak performance. The inter dynamics of the various requirements including risks that have to be monitored, places these departments at the centre of supporting peak decision making. Whether in the process of developing or reviewing organisational strategy, Accounting and Tax departments have not just the knowledge but also the capacity to reliably drive & shape organisational strategy.
4. Planning and forecasting – While many SMEs have been accused of not having a business plan and as such curtailed their likelihood to perform at their best, It’s not known how many of such businesses do plan and forecast their activities then structure them to enhance their performance through variance analysis. At the SME level variance analysis provides the best way to adjust to the business environment so as to improve performance, a much difficult undertaking for big businesses given their size and complexity. The use of management and other performance reports including business plans has been a key part of peak performing businesses development strategy.
5. Adjusting to harness globalisation – Globalisation has changed the way businesses operate. Even SMEs have to position themselves to meet global market needs or at least envision the potential of serving clients across borders. This focusses not only on generating more revenue but also on improving service or product delivery and the tax and other regulatory requirements that have to cater for stakeholders beyond the businesses geographical or political borders. With a fully functioning accounting and tax unit, issues like international market development, succession planning, international embargo, money laundering and many others will help entities structure themselves to perform better.

While accounting and tax departments are ‘backward’ looking in preparing performance reports, it’s their ability to look forward and to reliably answer pertinent questions affecting entities that define peak performing organisations. How is your business tapping into the strength of its Accounting and Tax department?

William PW Omony is the Manager/ Tax Consultant at Proactive Consult and CEO of PWO Prop Ltd, A property Investing and Sourcing Company. Proactive Consult is a Business and Tax consultancy firm in the City of London. We work with Individuals, SMEs & Multinational Companies in supporting their Tax advisory, compliance and reporting requirements.

Intuit Injects Note of Caution on Cloud

Richard Koreto for AccountingWeb writes: AccountingWEB recently conducted an email interview with Intuit's David Bergstein, CPA, CITP, CGMA, Regional Strategic Account Manager in the Accountant & Advisor Group. What does one of the most important players in the accounting technology space think about the cloud and other technology issues?

Who should be moving to the cloud: Big firms? Small firms? Everyone?

Who should move to the cloud depends less on firm size and more on the possible benefits firms can receive from the transition. The general goals of large and small firms will be the same, but large firms may just take those goals one step further.

Despite size, every firm should think about the answers to these questions when considering a transition to the cloud:

• Will it provide a more efficient workflow and automation of tasks?
• Does it save more time?
• If it exceeds present costs, what is the return on investment?

Based on the answers to the above, a firm can decide whether a move to the cloud is the right decision. Weigh the costs and benefits of the cloud, and the answer should be clear. 

What are the key things—possible pitfalls—you should know about moving to the cloud?

When considering a move to the cloud, a firm should view the transition as a change in "operating systems" and plan accordingly. Firms should develop a plan that transitions everything in a systematic way, ensuring all applications and solutions function together. Similar to the way a firm would approach any major business change, when transitioning to the cloud, firms should create a document with the designated goals and outcomes for the change, including what needs to be adjusted to meet those goals. They should also develop a way to track how the solutions being implemented are solving for desired outcomes.

There will of course be challenges when migrating to the cloud, and these challenges are the same for any size firm, though in a large firm the magnitude of the data conversion, and administrative need to monitor permissions and users, are both greater. To avoid pitfalls, as mentioned, firms should be ready with a checklist of what they need to do throughout the process, from start to finish. Things to consider:

• Is the firm moving one or all applications to the cloud?
• If a firm is using a desktop application for bookkeeping and payroll, is it moving both?
• What steps should be taken to ensure all data is transitioned to avoid re-entering data?

[snip].   The article continues at AccountingWeb, click here to continue reading at AccountingWeb.

TALLIE AND THE FUTURE OF ACCOUNTING

Bill Sheridan for MACPA writes: As we gear up for the MACPA’s annualInnovation Summit on June 16, we thought this would be a perfect time to have a conversation about the future with some of the Summit’s most forward-thinking sponsorship partners.

We asked each of them to give us their thoughts on the trends that are impacting the profession, the changing role of CPAs, and how their relationships with CPAs might be changing as a result. We'll be featuring their answers here over the next few days.

Continuing the conversation are the folks from Tallie. Here's what they had to say.

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We all know the trends that are impacting the profession today – social, mobile, the cloud. What are the next big trends that CPAs need to pay attention to?
Tallie: From technology trends to company culture, exciting changes are on the horizon for all areas of the accounting industry. The most notable industry shift exists in technology offerings, particularly the evolution from SaaS (software as a service) to SWAS (software with a service). This means accounting software must be simple, easy to understand and operate, accessible across technology platforms, and delivered by experts.

In a recent study by The Sleeter Group, only 13.5 percent of small to mid-size businesses considered their accountant "ahead of the curve” in terms of technology usage inside their firm. Furthermore, 17.1 percent answered that their accountant is considered “behind,” and 59.6 percent said their accountant is “current” (What SMBs Want from Their Accountant, 2014). The time to get ahead is now!

More people are choosing a mobile platform to complete business matters. For Tallie, it was essential that we paid attention to this shift in order to remain relevant. We now know that our expense management software must be easily available, and effectively usable, on-the-go.

Additionally, new entrants are challenging established players in the CPA world. The CPA role is evolving from old-fashioned beancounter to a strategic advisor with a new, improve skill set. Newbie CPAs are fast, flexible, and strategic, bringing efficiency and innovation to traditional methods and processes. In a budding age of automation, these people represent the future of accounting for CPAs. We can see that agility is beginning to trump ability. As young people continue to leave the industry, the battle for talent will intensify. If CPA firms wish to remain relevant and competitive, they must acknowledge this reality and embrace the future of our industry. Doing so will breed tremendous success for small to midsize businesses and accounting firms alike.

Key takeaway: Progress begins with truth. You only begin to offer value by addressing the elephants in the room. Lean into technology trends that are revolutionizing the accounting industry.

How will the role that CPAs play change as time moves forward?
As time hurries on, the role of CPAs is undoubtedly changing. We’re seeing a shift in the CPA value proposition from tax and audit to client services, and it’s critical that current CPAs prepare accordingly for this change. Why? Because this means the CPA is becoming a more prominent player in day-to-day business decisions, and thus can be leveraged across a far more expansive audience beyond the accounting world.

To further explain the shift from tax and audit to client services, we can compare the differences of each role. Clients ask their technical advisor to answer technical “point” questions. Comparatively, clients ask their business advisor to help them run a better business. Additionally, the desired CPA skill set is evolving from GIT (generalist, individual contractor, tactical) to SLS (specialized, leadership-driven, strategic). Good leadership holds a clear vision and the proven ability to unify teams.

Key takeaway: CPAs need to identify whether they fulfill the traditional tax-and-audit value proposition or the forward-thinking client services role, and fully embrace their choice to remain leaders in their field.

Is your relationship to the profession changing as a result?
In many ways, Tallie is pioneering a corner of this industry-wide shift. Our expense report software strives to set an example for providing a seamless, end-to-end workflow solution for both small to medium-size businesses and the accounting BPO field alike. The Tallie engineering team worked closely to build the first real-time bi-directional QuickBooks Online integration that presents the opportunity to reinvent the client service value proposition.

We believe in saying final goodbyes to manual syncing of a widening array of third-party applications. We believe in users having real-time access to data across systems, including source documents. We believe in a complete cloud-based accounting workflow solution that’s best-of-breed and simple to implement. As a result, we created one that truly delivers on the BPO promise of lowered costs, higher efficiency, financial visibility and control.

Key takeaway: We believe Tallie serves as a catalyst to the shifting landscape for CPAs, by heightening their flexibility and deepening their value proposition in the evolving relationship between accounting and technology.

What’s the most important thing Innovation Summit attendees need to know about your business?
Top firms are acknowledging that company culture and good technology are more important than ever for recruitment and retention. So naturally, the primary blocker in behavior adoption is change management.

Tallie is expense software built for use. From data synchronization to approval control, Tallie is designed to create less work and generate immediate ROI. How? Tallie recaptures time value, creates transactional visibility, facilitates policy enforcement and fraud prevention, and so much more.

Key takeaway: The Tallie + QBO integration is the only complete solution for cloud-based expense management. We’ve created a helpful booklet detailing the integration that is available for electronic download. We invite all attendees of the MACPA Innovation Summit to explore the Tallie + QBO workflow solution to further establish themselves as leaders in the shift of technology for the accounting industry.

Is credit card interest tax deductible?

CreditCardGuru @ CreditCardForum.com writes: Is credit card interest tax deductible?     Answer: Let’s be honest – the U.S. tax code is a messy nightmare and it’s not always obvious what’s deductible and what’s not. We all know mortgage interest can be deductible, but is credit card interest tax deductible too? Well unfortunately, the answer is usually no, but sometimes yes (I’ll discuss in a moment). However what’s shocking is that credit card interest payments were tax deductible in the past… then on Oct. 22, 1986 Reagan signed a bill that eliminated interest deductions for consumer loans, which included cars, credit cards, etc.

However here’s a possible exception for claiming credit card interest on taxes but check with a tax professional to find out for sure:

Qualified business expenses?

Do you work for yourself? Do you own a small company? If you have made interest payments on qualified business purchases made with a credit card, then you might be able to deduct the interest for those – check with a tax professional or your small business tax software for the answer.

However when credit card interest is tax deductible, one of the pickles that many small business owners find themselves in is that they commingled their finances by using a single credit card for both personal and business purchases. If that is done, how on earth are you going to be able to calculate the interest that corresponded to your business expenses? Remember, if you don’t pay your balance in full each month the credit card interest begins accruing from the date of each purchase, which would make finding the answer even more perplexing. Then of course, minimum payments would have to be factored in somehow (and I don’t even know how you that would be done).

In short, if you are mixing personal and business expenses on a single credit card, unfortunately I think it might be next to impossible to write off the interest from the business expenses (unless your accountant knows how to do it). I personally would never try to deduct the interest if I commingled, because how on earth would I defend my calculations in an audit? I wouldn’t be able to! And, in my opinion, it’s better to be safe than sorry when it comes to taxes!

9 comments... read them below or add your own   (To comment Visit CreditCardForum.com, click here!)

1. 
   

   Di November 6, 2013 at 6:34PM

   Is the interest I pay on my Care Credit Card tax deductible? It is only used for health/dental/pet issues. They do offer interest free if payed off within so many months, but if you don’t you start paying interest and have to pay all the interest from the past months too. I have used this for my pets surgery two years ago and am still paying.

   REPLY
2. 
   

   timothy April 3, 2013 at 10:11AM

   We are actually being double taxed. We pay income tax on money to pay CC interest. Then the banks pay tax again on the same CC interest. The tax code is supposed to be set up to tax only one time. Somehow everyone has forgotten this premise. Int = Prin X rate X time. The government doesn’t have a dog in the CC interest business so they don’t really care if it is usury. Really 18%. They do care about T bills @ 4%.

   I say make CC interest tax deductible and the economy will take off. Lower CC interest = more money to spend / invest.

   REPLY
3. 
   

   Joe December 4, 2012 at 5:38PM

   I’m glad they got rid of this deduction. Up until 1986, the IRS was actually encouraging people to spend irresponsibly on credit cards instead of paying off debts in a timely manner. No wonder why we have $16T in national debt.

   On a side note, the mortgage interest deduction has at least partially caused all of the crazy booms and crashes in the housing market. How many people were willing to borrow an extra $100K knowing that they could get a significant amount of that money back as a tax credit?

   REPLY
4. 
   

   Oryx March 27, 2012 at 12:22PM

   Reagan was such a freaking liberal. So why aren’t the tea party people advocating reversals of these tax rules? If they were, I’d be on the front lines waving the tea party flag. They just advocate for lowering taxes for the rich.

   People that pay interest on CC’s are usually people who have been laid off jobs and use credit cards to buy food and necessities. If the IRS allowed for an interest deduction, think of what would go back into the economy! Better yet, how about giving banks incentive NOT to charge 30% interest rates by taxing the profits gained from interest rates above 10%.

   REPLY
   • 
     

     esfritzi March 17, 2013 at 6:34PM

     And the 1% “rich” pay 40% of the taxes! Sounds like a balanced approach to me.

     REPLY
5. 
   

   disconap March 6, 2012 at 9:06PM

   @Slim–no, you would just categorize it as Interest (make sure this is a separate “interest” listing than any income interest, you can’t just delete one from the other). In Quickbooks you can set it up as an expense, and even specify different types of interest expenses. I think you can do that in Quicken and software from other (better) companies than Intuit…

   REPLY
6. 
   

   Slim March 4, 2012 at 5:10PM

   @Ronald (and Guru). Wasn’t that the point of the article? And wasn’t that answered in the article?

   Just curious.

   I actually came here to find out how to categorize credit card interest as a business expense. The credit card was used for repairs, but the interest shouldn’t be classified as ‘Repairs’, should it?

   Thanks!

   REPLY
7. 
   

   ronald kyle chewning February 22, 2012 at 4:09AM

   can you deduct interest from credit cards ?

   Thanks

   REPLY
   • 
     

     CreditCardGuru February 22, 2012 at 11:05PM

     Nope, sorry! It used to be deductible but that was changed in the 80′s under President Reagan.

     REPLY

How Business Owners Can Avoid the New Investment / Tax Take an Active Role in Running the Enterprise, and Prove It to the IRS

Arden Dale for the Wall St. Journal writes: Business owners can avoid paying a new 3.8% investment tax on their profits by taking on an active role in running the enterprise. But they need to document their workload and maintain that work level year after year, experts say.

The tax on net investment income, enacted as part of the Affordable Care Act, took effect in 2013. It is levied on dividends, capital gains and other investment income for most married joint filers who have more than $250,000 in adjusted gross income. (For most singles, the threshold is $200,000.)

The Internal Revenue Service imposes the tax on individuals who are the ultimate owners of entities such as partnerships and S corporations, whose income passes through directly to the owners, when it determines owners have more of a passive "investor" role—based partly on how much time they spend on the job. Active owners don't have to pay the tax on income from the business.

Financial advisers say clients are asking how hard it would be to go from being a passive owner to an active one. "This is not easy to do," says Katherine Dean, managing director of wealth planning at Wells Fargo Private Bank, which has $170 billion under management. "Don't try to convert passive activities if you are not seriously participating in the continuing running of the business." [snip].  The article continues @ the Wall St. Journal.... To continue reading visit the Wall St. Journal, Click Here!

SugarCRM: Should Salesforce.com Be Worried?

Tom Taulli for Forbes writes: When it comes to CRM (customer relationship management) software, Salesforce.com CRM +0.84% seems to be the only option. 

Yet there are a variety of competitors making a dent in the company’s armor. Just look at SugarCRM. Founded about a decade ago, the company now has its software deployed by over 1.5 million individuals across 120 countries.

So to learn more about SugarCRM, I recently met with the company’s CEO, Larry Augustin.  He is a veteran of the tech business, having been the founder and CEO of VA Linux and also the interim CEO of Medsphere. Along the way, he has served as an advisor to various startups. 

Here’s what he had to say:

Tom Taulli: How is SugarCRM different from Salesforce.com? What’s your strategy for winning?

Larry Augustin: SugarCRM provides the most innovative and affordable CRM solution in the market. We are different in three key ways.

First, while most CRM systems focus solely on management tracking and reporting, SugarCRM puts the needs of the individual user first—fusing the seamless simplicity, mobility, and social aspects of a consumer app with the sales optimization of conventional CRM. The latest release of Sugar includes a significantly enhanced user interface called Sugar UX™, which offers an immersive, intuitive interface to CRM designed to help the individual contributor do their job. The SugarUX delivers contextual intelligence about every individual contact, company, lead, case, and opportunity, from internal data and external sources via an advanced Intelligence Panel; as well as enhanced collaboration features, including context-sensitive activity streams all on a single page.

Second, SugarCRM gives our customers complete flexibility in how they deploy the system. We offer a multi-tenant cloud service, a private instance in the cloud, and also allow customers to deploy on their own internal clouds. This gives customers a level of control they can’t achieve in a proprietary SaaS-only model where their data is locked up in one vendor’s data silo. This allows our customers to more easily comply with international data security and privacy laws, lowers the costs of integration and makes it easier for our customers to create a unified view of their customer data across systems. [snip].  The article continues @ Forbes.com, click here to continue reading.

What are the Tax Advantages of Rental Properties?

Mark Ferguson for InvestFourMore writes:  Rental properties are a great investment thanks to the cash flow they produce.  Not only does a great rental property provide plenty of cash flow, but rental properties have incredible tax advantages.  The IRSs allows most expenses associated with rental properties to be deductible or to be depreciated and you can depreciate the property as well.   It is very common for a rental property to produce a profit, but thanks to depreciation show a loss on your taxes.

For more information on why I think rental properties are such a great investment check out my complete guide to purchasing long-term rentals.

I am not a tax professional!

This article is meant to offer a broad overview of the tax advantages of rental properties, not specific advice.  I am not an accountant or an attorney and if you are looking for tax advice please talk to a tax professional.  This article gets much of its information from the IRS tax code on rental properties.

Can interest on a mortgage be tax deductible on rental properties?

The interest you pay on a rental property can be a deduction on your tax return.  Your entire payment cannot be deducted, because part of your payment is equity pay down which is not deductible.  Paying down equity is not considered a business expense, since the money is not spent on repairs or maintenance, but used to reduce debt.

There is talk of the IRS eliminating the interest on mortgages as a deduction for primary home owners.  However That probably will not affect rental property owners because the interest is thought of as a business expense, not a special deduction.

How does the IRS treat depreciation on rental properties?

The IRS treats rental property as an asset that can be depreciated.  They assume the rental property will slowly degrade over time until it falls down and is worthless.  Most properties are not going to fall into a pile of rubble unless they are not maintained, but the IRS does, which is very good for rental property owners.

The IRS says a house will last 27.5 years, which means an investor can deduct the cost basis of the rental property in equal increments over 27.5 years.  To calculate the amount that can be depreciated; divide the cost basis by 27.5 and that is your deduction for the next 27.5 years.

What does the IRS consider the cost basis on a rental property?

The cost basis is the cost of the rental property and only includes the structure of a rental property, not the land.  If you buy a rental property for $100,000 that is on its own lot, the entire $100,000 is not the cost basis.  You have to deduct the value of the land from the purchase price and then you have the starting point for your cost basis.  You can also add many of the closing costs like abstract, title, recording and other fees to the cost basis.  The entire list can be found on the IRS website.

Depreciation is what allows a rental property to show a loss, even though it may have made you money

If I am bringing $3,000 of rental income on a property after all expenses, I get to use that $3,000 however I want.  However it most likely will not show up as $3,000 in taxable income because of depreciation.  If the cost basis of my rental property is $100,000 then the depreciation would be $3,636 a year for 27.5 years.  The $3,636 would counteract all the income I made, plus show a loss of $636!  Even though I have $3,000 more in my pocket due to my rental property, I pay no taxes on that money and may even be able to counter other income with that loss.

What is the disadvantage of depreciating a Rental property?

If you depreciate a rental property over 20 years and sell the home; you will have a large tax bill from the IRS.  The depreciation on rental properties can be recaptured, which means you have to pay back all those taxes you saved with the depreciation deduction.   The depreciation is only recaptured if you sell the asset and for at least the amount of your cost basis minus the depreciation.

Even though you have to pay back those tax savings it is still better to pay those taxes 20 years down the road instead of now.  With inflation, money is worth less in the future and you can also invest that money for 20 years until you have to give it back to Uncle Sam.  It is like a no interest loan from our government!  There are also many ways to avoid depreciation recapture.

How do you avoid depreciation recapture on rental properties?

• The easiest way to avoid paying back the tax savings is to keep the rental property and never sell it.  After 27.5 years you won’t be able to use the depreciation tax break anymore, but you also won’t have to pay back any of the previous tax savings.
• Another way to avoid the depreciation recapture is to use a 1031 exchange.  If you sell your rental property, the IRS allows you to exchange that property for a similar property without having to recapture any depreciation.  Here is much more information on 1031 exchanges.
• If you happen to pass away while you own your rental properties; the properties will pass on to your heirs.  When your heirs inherit the properties the cost basis becomes the current value of the properties, not what the original owners cost basis was.  That means there will be no depreciation recapture.  Planning to hold your rental properties until you die, is not a bad strategy tax wise.

What other expenses can be deductible on rental properties?

Not every expense on rental properties is deductible, but many are.  Since rental properties are considered a business; travel expenses, accounting fees, management and many more expenses are debatable.

If you make repairs on your rental properties they are deductible as well, but improvements are not.  If you repair a leaky faucet that is deductible, but if you add-on a second story it is considered an improvement and not deductible.

For more information on why I think rental properties are such an awesome investment, check out my book How to Retire Rich and Early with Real Estate.  The book is available as at Amazon or as a PDF here. 

How are improvements calculated on tax returns?

Even though improvements are not deductible, that does not mean you can’t count them on your taxes.  Improvements can be depreciated like the rental property itself.  There are different amounts of time that improvements are depreciated over, ranging from 3 to 20 years.  You won’t have to wait 27.5 years to see the full tax benefit of most improvements.

Are there maximum amounts that can be deducted?

The IRS has different rules for those considered in the real estate business and those that are not.  If you spend more than half your time on rental properties you are considered in the rental property business.  If you are in the business there is no limit to the deduction or losses you can take on your rental properties.

If you are not in the rental property business you can take a maximum $25,000 loss depending on how much money you make.  The more money you make the less of a loss you can count towards your other income.  The deductions and depreciation will still counteract the money you make on the rental properties, but it might not help reduce your regular income taxes.

Conclusion

Rental properties are an awesome investment and a great way to retire thanks to the cash flow they produce.  The tax savings are an amazing benefit that make rental properties an even better investment.  I would always consult a tax professional for any specific tax questions or when trying to figure out what can and cannot be deducted or depreciated.

Xero and TaxJar go Together like Peanut Butter and Jelly

Mark Faggiano for  TaxJar writes: You were tired of always dealing with your small business accounting, so you signed up for Xero. This was an incredibly great idea because you can now focus more on your small business rather than wrestle with numbers all day.

Xero does a great job of showing you how much sales tax you have collected, but our new TaxJar/Xero integration takes that one step farther.  TaxJar helps you slice and dice what you owe to each state and when. We even break this down by tax jurisdiction for those pesky destination-based states that require an extremely granular sales tax return.

While sales tax and accounting may not be “simple” anytime soon, combining these two small business finance management services together gets you as close as possible to automating your small business  accounting and sales tax compliance.

How Xero and TaxJar Work Together for Your Business

Not convinced? Here’s a quick rundown of how it works so you can see how much simpler your business life will be.

When Xero pulls your ecommerce order history, TaxJar will automatically look up the sales tax collected through each state, city, and beyond. In no time flat you’ll know how much you owe to each state. On top of that, you also know when you need to pay these amounts. This is incredibly helpful for sellers with sales tax nexus in multiple states, considering how varied the due dates can be across the nation.

TaxJar will even create “bills” within your Xero account to let you know how much sales tax you have due, and when. No more dealing with calendar alerts, spreadsheets or tax tables to ensure you pay your sales tax on time!

Filing sales tax with a state’s taxing authority isn’t the whole story, though. You also need to keep accurate track of these numbers so you better grow your business. After all, it’s part of the reason you signed up with Xero in the first place. Keeping good records of your finances frees you to make your business truly thrive.

So that’s why we made sure to also focus on improved accuracy of your Xero ledger. Instead of trying to remember the totals or using guesswork, TaxJar now updates Xero with all the latest sales tax totals. Now you really know how well your business has been doing,  and you can adjust accordingly.

Ease of Use

As mentioned, sales tax is never really going to be “simple.” In fact, states are going out of their way to make things tougher and tougher to make what they deem a more fair playing ground in business. Basically states want tax revenues from eCommerce, and they keep trying new and novel ways to collect it.

But this is where companies like Xero and TaxJar shine, especially when they work together. As complicated as online sales tax is, we’re determined to make it that much easier. That’s why we’re glad to be working with partners like Xero who know that running a business takes a lot of work and are just as determined as we are to streamline the process for everyone.

So the next time you think about sales tax and are stressing about the filing frequency or how to figure out all the tons of districts and states and their various sales tax rates, just pull up your Xero account and link your account with TaxJar. We promise to reduce your stress level as much as we can.

Confused about sales tax? Our Sales Tax 101 for Xero Users will answer your questions and get your Xero/TaxJar integration set up as quick as you can enjoy a peanut butter and jelly sandwich!