• 261 N University Dr Suite 500 Plantation, Florida 33322
  • 754-248-9760
  • info@incomegrowthtaxes.com
  • Mon - Fri : 09.00-17.30
  • 754-248-9760
  • Mon - Fri : 09.00-16.00
Schedule a Consultation

FAQ - Resource

1. How should I report my Airbnb income on my tax return?

The reporting of Airbnb income depends on the nature of your rental activity:

Schedule C (Profit or Loss From Business):

If you provide substantial services to guests—such as regular cleaning, concierge services, or meals—and the average rental period is less than 7 days, the IRS considers this as active business income. In this case, you should report the income and expenses on Schedule C, and it will be subject to self-employment tax.

Schedule E (Supplemental Income and Loss):

If you do not provide substantial services and the rental period exceeds 7 days, the activity is generally considered a passive rental activity. Here, you would report the income and expenses on Schedule E, and it would not be subject to self-employment tax.

2. What are the key differences between a Roth IRA and a Traditional IRA?

The primary differences between Roth and Traditional IRAs involve tax treatment, contribution rules, and withdrawal requirements:

Tax Treatment:

Traditional IRA:

Contributions are typically tax-deductible in the year they are made, reducing your taxable income. Withdrawals during retirement are taxed as ordinary income.

Roth IRA:

Contributions are made with after-tax dollars and are not tax-deductible. However, qualified withdrawals during retirement are tax-free.

Contribution Rules:

Traditional IRA:

There are no income limits for making contributions, but deductibility may be limited if you or your spouse are covered by a retirement plan at work and your income exceeds certain levels.

Roth IRA:

Contributions are subject to income limits; if your income exceeds these limits, you may not be eligible to contribute directly.

Withdrawal Requirements:

Traditional IRA:

Required Minimum Distributions (RMDs) must begin at age 73.

Roth IRA:

No RMDs are required during the account holder’s lifetime, allowing the account to grow tax-free for a longer period.

Choosing between the two depends on factors like your current tax bracket, expected tax bracket in retirement, and whether you prefer tax benefits now or later. 

3. What are shareholder basis limitations in an S Corporation?

In an S Corporation, a shareholder’s ability to deduct losses is limited by their stock and debt basis:

Stock Basis:

Initially consists of the amount paid for the stock. It is adjusted annually by adding income items and additional contributions, and subtracting distributions and loss or deduction items.

Debt Basis:

Created when a shareholder lends money directly to the S Corporation. Like stock basis, it is adjusted annually.

Traditional IRA:

There are no income limits for making contributions, but deductibility may be limited if you or your spouse are covered by a retirement plan at work and your income exceeds certain levels.

Roth IRA:

Contributions are subject to income limits; if your income exceeds these limits, you may not be eligible to contribute directly.

A shareholder can only deduct losses up to the amount of their combined stock and debt basis. Losses exceeding this basis are suspended and carried forward until the shareholder has sufficient basis to deduct them.

4. How does the Passive Activity Loss (PAL) limitation affect rental real estate activities?

The PAL rules restrict the ability to deduct losses from passive activities, which typically include rental real estate, against non-passive income:

Material Participation:

If you materially participate in the rental activity, it may not be considered passive, allowing you to deduct losses against other income.

eal Estate Professional Exception:

If you qualify as a real estate professional by meeting specific requirements, your rental activities are not subject to PAL limitations.

Active Participation Exception:

Even without material participation, if you actively participate in the rental activity, you may deduct up to $25,000 of rental losses against non-passive income, subject to income limitations.

Understanding these rules is crucial for maximizing the tax benefits of rental real estate activities.

5. What are the tax implications of converting a Traditional IRA to a Roth IRA?

Converting a Traditional IRA to a Roth IRA involves several tax considerations:

Taxable Income:

The amount converted is added to your taxable income for the year, potentially pushing you into a higher tax bracket.

Timing:

If you qualify as a real estate professional by meeting specific requirements, your rental activities are not subject to PAL limitations. Converting in a year when your income is lower can minimize the tax impact.

Future Tax Benefits:

Once converted, qualified withdrawals from the Roth IRA are tax-free, and Roth IRAs are not subject to RMDs during the owner’s lifetime.

 Careful planning is essential to determine if a Roth conversion aligns with your financial goals and tax situation.

6. How are Qualified Business Income (QBI) deductions calculated for pass-through entities?

The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from pass-through entities like S Corporations, partnerships, and sole proprietorships:

Qualified Business Income:

Includes net income from a qualified trade or business, excluding items like capital gains or losses, dividends, and interest income.

Limitations:

The deduction is subject to various limitations based on taxable income, the type of business, W-2 wages paid, and the unadjusted basis of qualified property.

Future Tax Benefits:

Once converted, qualified withdrawals from the Roth IRA are tax-free, and Roth IRAs are not subject to RMDs during the owner’s lifetime.

Have a Question?

Call Now Button