• Category Archives Tax
  • Tips and Tricks For Doing Your Own Tax Returns

    With the 30th June date well behind us it is time to consider that dreaded task…doing your tax return. In this post I’d like to focus on income tax benefits for real estate investors. For Australians, doing your own tax return is now simplar than ever with the governments e-tax online system. Doing your own tax is not difficult but it is time cosuming. However, the benefits that you will get out of doing your own tax return far outway any time constraints that you may have. Not only will you get a much better understanding of the tax system but you will also get a better understanding of your own financial situation. You may even find that with all of this new knowledge that you find ways to make your money work harder for you from a tax perspective. You may see ways to improve your financial position that you had not seen before. By preparing your own taxes you will develop a better tracking system of your income and expenses. Below are some tips for someone who is thinking of preparing their tax return by themselves for the first time:

    • Make sure you read through as much information as you can. There are thousands of great articles on the internet that are free to read (just like this one!). I find articles to be much more helpful as they’re easier to read, usually focus on one or two points at a time and are generally more up to date than books. It is not uncommon for tax rules to change from year to year so make sure that you’re reading the most applicable information to your situation.

    • Be honest whne preparing your tax return as making too many wild assumptions will make it impossible for you to keep track of why you claimed one item over another. It could also get you in trouble with the tax departmentand.

    • Doing your own tax is not for everyone. It is always a good idea to be on top of your taxes but if you have quite a few properties and your tax returns are quite lengthy then it will make more sense to hire a chartered accountant. As they get more complex, you may actually cost yourself money by doing them yourself. However, think of how much ahead of the game you will be with your accounting systems and knowledge.

    Let us know some of your tips and tricks when doing your tax return by adding a comment below. Do you do your own taxes or hand them over to an accountant? Did you find doing them beneficial?

  • Does US Tax Make Sense?

    Realising that we are going to have to start filing a US tax return at the end of the year (the US financial year runs from January to December), I started to look into how the tax system works and what forms we need to fill.

    I have not figured out all the complexities of their system but I believe we are going to change the classification on our LLC so that it is classed as a corporationn(C Corp) for tax purposes.

    I remember seeing C Corp and S Corp when we were first setting up the LLC, but did not know the repercussions of each class, so we ended up going for the default partnership arrangement. Unfortunately, if we leave it as this, it means that both us will need to apply for an ITIN and file individual tax returns. Essentially each tax return will declare 50% of the income and deductions and you also have to file a tax return for the LLC.

    While I was looking at the rate of tax paid in the US system, it made me realise that the way Australian tax is done is a lot simpler and seems to make a lot more sense. What I mean by this is the amount of tax paid is linear, as you earn more, you pay more tax. Whereas, in the US system, it is has big steps between the brackets. I will show you what I mean:

    10% on taxable income from to $8,700, plus

    15% on taxable income over $8,700 to $35,350, plus

    25% on taxable income over $35,350 to $85,650, plus

    28% on taxable income over $85,650 to $178,650, plus

    33% on taxable income over $178,650 to $388,350, plus

    35% on taxable income over $388,350

    You can see that there is no tax free threshold like there is in Australia (currently $16,000), and there is no marginal rate for amounts over a certain amount. What does this mean? Let’s look at the following situation:

    Person A earns $35,300 in annual income – pays a rate of 15% tax, so net income becomes $30,005

    Person B earns $35,400 in annual income – pays a rate of 25% tax, so net income becomes $26,550

    It is amazing isn’t it, Person B earns more income, yet because of how the US tax system is setup, it forces him to be taxed more and end up with a lower net income! It really does not make sense. I am tempted to ask my US accountant if this is true. It would make me want to ask my boss for a “de-raise” if I was close to one of the brackets or look at what tax deductions I could claim to lower my taxable income. What do you think?