Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

This answer was rated:

My question is to verify that what my accountant told me is…

For Lane only.My question is...
For Lane only.My question is to verify that what my accountant told me is correct.I own a property that I am renting out. The property is registered and owned by Maryland LLC partnership. I own 50% of the LLC and my wife the other 50%. We equally invested money to purchase the properties, and manage it ourselves. We are not qualified as professional since we spend about 200 hours a year to ménage the property.
My accountant told me that since we are “at risk investors” and active managers of the property, we are considered to the IRS to be Self Employed.
Accordingly as self-employed, we personally on our tax return need to pay Self Employment tax of about 16% of the net profit. Also, since we are Self Employed, we can contribute personally to SEP IRA up to about 20% of the net profit.
I think my accountant is correct, but like you opinion.Thanks
Show More
Show Less
Ask Your Own Tax Question
Answered in 1 hour by:
3/10/2018
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,140
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
Verified
The expert you requested does not appear to be online. With your permission, I would like to answer your question. I am a licensed CPA who has been practicing tax for over 33 years. I have a masters in accounting and a masters in taxation. I also teach accounting and tax and a National University at the Masters level. I work for a large National CPA firm, and am the firm's expert in many areas.
Ask Your Own Tax Question
I do not believe that you're accountant is correct. A close reading of Internal Revenue code section 469 will show you that your activities do not meet the level required to be a real estate professional. 200 hours is far short of sufficient. There are numerous U.S. Tax Court cases which will back this up. If you would like, I can cite them when I go back to work tomorrow and have my research software available.Do you want to be classified as self-employed? Is that your goal? Because you would have to do something far different than simply managing a few properties.
Ask Your Own Tax Question
An at-risk classification is simply a determination as to whether or not you can deduct a loss. It does not classify you as self-employed or not. If you are not at risk, you are not allowed to deduct certain losses. But then, passive activity rules would also prohibits you from deducting certain losses.
Ask Your Own Tax Question
Customer reply replied 4 months ago
Sorry I was out of town to answer you.
My goal is to not pay Self Employment taxes, however I need to make it correctly. I searched on Google about this issue and found out that general manager of LLC can take profit from LLC through W2, or Guaranteed payment. W2 is out since I am not employed by the LCC. If I take guaranteed payment as active manager, I need to pay Self-employment tax. If I take guaranteed payment being “limited partner” I don’t need to pay self-employment tax. But the problem in taking guaranteed payment being “limited partner” is that I cannot be in any way classified as limited partner and accordingly must pay self-employment taxes.
I am using TurboTax to do the LLC 1065 tax return. As soon as I classify myself as general manager, TurboTax automatically insert self-employment income on line 14A of K1. However if I classify myself as limited partner, line 14A of K1 is blank.So the big question is, can I classify myself and my wife as limited partners? We spend at most 200 hours a year to collect rent, minor repair, and accounting.
Thanks
No, what you do is classify the activity as a passive activity. When you classify the activity itself as passive, everything you should flow through as not subject to self-employment tax.
Ask Your Own Tax Question
Customer reply replied 4 months ago
where on 1065 do I classify my activity as passive? Do I classify myself as general manager too?
Customer reply replied 4 months ago
there no place in Turbo Tax to classify activity as passive actvity
I am not a Turbo Tax expert, but I am good friends with one. Let me check and get back to you.I know that it is the activity, not the partnership classification, that makes it passive or not. And Rental real estate is definitely a passive activity. Just because you own it and manage it, you are still renting out real estate. That is a passive activity. The only way would be active is if you were classified as real estate professionals, and you are not.I will get back to you later this afternoon.
Ask Your Own Tax Question
Customer reply replied 4 months ago
Thank you.

Are you putting the income and deductions in as general? OR are you putting it in on the Form 8825 rental income page?

Ask Your Own Tax Question

It should be on the Form 8825 input page. That should trigger it as passive non-self-employment activities

Ask Your Own Tax Question
Customer reply replied 4 months ago
All entered on Form 8825 input page.
I am attaching the return as PDF file

I spoke with my friend, who is a TurboTax expert. She was actually on their help desk for a while. Here is what she said:

What the customer is saying is correct.

"As soon as I classify myself as general manager, TurboTax automatically insert self-employment income on line 14A of K1. However if I classify myself as limited partner, line 14A of K1 is blank."

I think he means General Partners, but you get the idea.

It has to do with how he's answering the interview questions.

See this: https://ttlc.intuit.com/questions/3261011-where-on-turbotax-business-is-the-materially-participate-question-i-selected-the-wrong-option-my-first-try-and-can-t-find-it

taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,140
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
Verified
taxmanrog and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 4 months ago
Thank you for all your help. You have done more than I expected..
Her suggestion did not solve the problem. I selected General partner and not "Materially Participate" and still getting self-employment income on line 14A on K1.
I have to clear this problem with Turbo Tax directly. Now from all the readings, and your help, I know for sure that I should not pay self-employment tax.
Thank you, ***** ***** your help.
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask taxmanrog Your Own Question
taxmanrog
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,140
1,140 Satisfied Customers
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.

taxmanrog is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,512 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
I'm a real estate agent in NYC and in Miami, FL. I also own
I'm a real estate agent in NYC and in Miami, FL. I also own investment property in FL and plan to continue to build up my real estate portfolio, while collecting real estate commission on sales in bot… read more
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,494 satisfied customers
I have a question on checkbook IRA's. I was planning on
I was planning on creating a multi-member LLC in New Jersey with two members, my 401K Retirement Fund (65% of the funds) and my wife's SEP-IRA (35% of the funds). My wife and I would be listed as managers of the LLC on a 50/50 % ownership. All this to be under a Checkbook Self-Directed IRA for the main purpose of investing in real-estate backed loans. Is this possible? If not, how should I proceed? I was planning on creating a multi-member LLC in New Jersey with two members, my 401K Retirement Fund (65% of the funds) and my wife's SEP-IRA (35% of the funds). My wife and I would be listed as managers of the LLC on a 50/50 % ownership. All this to be under a Checkbook Self-Directed IRA for the main purpose of investing in real-estate backed loans. Is this possible? If not, how should I proceed? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,569 satisfied customers
My MD LLC is a sole proprietor and I want to give my wife
my MD LLC is a sole proprietor and I want to give my wife 49% membership. Do I issue her a K1?… read more
Lev
Lev
Retired
Bachelor\u0027s Degree Equivalent
27,134 satisfied customers
I am self-employed. I would like to verify tax deduction
I am self-employed. I would like to verify tax deduction for self-employed retirement plans. For the 2014 tax year, you could feasibly contribute as much as $17,500 in deferred salary ($23,000 if you'… read more
Lev
Lev
Retired
Bachelor\u0027s Degree Equivalent
27,134 satisfied customers
It is Professional. me and my wife partner in LLC. We file
It is for Tax Professional.me and my wife partner in LLC. We file joint return.I have set up 401K plan under my LLC . since it is husband and wife LLC, We do not generate W2, so did not do salary defe… read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
I have rental properties which i manage myself and that is
hi, i have rental properties which i manage myself and that is all i do for living, i do qualify as material participated and a real estate professional, i use schedule E and line 26 shows NPA, can i … read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
What type of compensation is allowed SEP contribution? Is
What type of compensation is allowed for a SEP contribution? Is income reported on a K-1 allowed? Neither employee of the company received a salary that was subject to withholding or SS taxes… read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
I have a client that has an S corp where he is the only
I have a client that has an S corp where he is the only employee. He doesn't do much W2 income. Can his SEP contribution be based on the net income of the business or his K1 income at least?… read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
If I have an LLC set up and retail buying/selling, and I
If I have an LLC set up for consulting and retail buying/selling, and I would like to have a business brokerage account in order to manage the business' funds to increase overall return of the entity,… read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
I've got a question in which I hope to get a few responses. I have gotten different
I've got a question in which I hope to get a few responses. I have gotten different ones from different accountants. I am self employed for the majority of my jobs. I work about 3 jobs in the medical … read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
How can I maximize tax savings for 2013 . Husband pays into
How can I maximize tax savings for 2013 . Husband pays into 401K I don't qualify for 401 K so I will contribute to Traditional IRA account for the year . What else can we do to lower tax liability at … read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
I and spouse have the Roth IRA respectively with John
I and spouse have the Roth IRA respectively with ***** *****cock. We are planning to use portion of the amount to invest on real estate. We were told to open a check-book control LLC, but we need a cu… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,465 satisfied customers
I own a LLC (with my wife, split 40-60). LLC had a net profit
I own a LLC (with my wife, split 40-60). LLC had a net profit will report self-employment income on K-1 for both myself and my wife. Both of us also had W2 income made 401k contributions on W2 employe… read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
I had asked a question previously when a SEP IRA was used,
I had asked a question previously when a SEP IRA was used, however, I have a different twist to a different type of plan. Again this is a muti-member LLC filing as a partnership. The partners are a hu… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Suppose a family of three sets up a family LLC (F), composed
Suppose a family of three sets up a family LLC (F), composed of three LLC's (A, B, and C) that are each owned by solely a different family member. The family LLC is taxed as a partnership, to allow fo… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
I am taking Social Security and making the maximum extra -
I am taking Social Security and making the maximum extra - but I get paid bonus in my business (real Estate). No taxes are taken out of any of my extra salary or bonuses. Sould I form a Limited Liabil… read more
Bill
Bill
Master\u0027s Degree
3,132 satisfied customers
My wife & I have an LLC in which my services are the main
My wife & I have an LLC in which my services are the main income generator. She works in the company also, but neither of us draws a salary. All of the profits flow through to our personal tax return … read more
RD
RD
Self Employed
Master\u0027s Degree
1,164 satisfied customers
I am a new develper. I bought an empty lot for $325,000 and ...
I am a new develper. I bought an empty lot for $325,000 and build a house on it. The construction cost is $675,000. I sold the property for $1,500,000. What is my capital gain Tax on this transaction.… read more
Christopher Phelps
Christopher Phelps
Sole Practitioner
Master Degree
1,180 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x