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How are Dividends Taxed?

Posted on October 31st, 2016

I have met many clients who are looking to make a living off of the income they earn through dividends, but are hesitant to take the leap due to misgivings about how dividend income is taxed. While you might think that all dividends are taxed as regular income, there are actually two types of dividends according to the tax code. Knowing the difference between ordinary dividends and qualified dividends can be essential when considering the tax implications of potential real estate investments.

How are Ordinary Dividends Taxed?

Ordinary dividends are taxed at a higher rate than their qualified counterparts. These dividends can come as the result of interest or stock ownership in a foreign company, or that was short sold at market. For a dividend to not qualify, it will have been held for less than 60 days, during the 121-day period, starting 60 days prior to the ex-dividend date.

What this means is that dividends received through stocks that were short sold are not liable for the capital gains tax rates, nor are those that came out of a foreign company not subject to certain trade agreements with the U.S. Instead, nonqualified dividends are taxed at your individual income tax rate, meaning that you will undoubtedly pay more.

What Qualifies Dividends?

In order for a dividend to qualify for the capital gains tax rate, the stock in question must be owned for at least 60 days of the 121-day period, and for 60 days prior to the ex-dividend date. These dividends will also need to come either from a company based in the U.S., or else in a country that has a specific existing trade agreement with the U.S. While there are some exceptions, these requirements will make most of the dividends paid out by native corporations qualify for the capital gains tax rate.

What is the Capital Gains Tax Rate?

When taxed on the capital gains rate, you will be required to pay significantly less than normal income tax rates. If you are an investor within the 15-10 percent tax bracket, you get to pay the best tax rate possible on qualified dividends: 0. Additionally, with the American Taxpayer Relief Act (ATRA), your income tax rate will cap at 20 percent, which is only slightly greater than half of the maximum tax rate for unqualified dividends.

Understanding your tax liability based on the types of dividends you receive can greatly affect whether you should operate as a long term investor, or earn income through short sale. At GJR Consulting, our tax professionals in Covina are dedicated to helping you reduce your liability, and plan ahead to ensure that you won’t be caught off guard by hefty taxes on unqualified dividends.


The Tax Benefits of Depreciation

Posted on October 21st, 2016

As an accountant and realtor, I have often seen the advantages of understanding the full worth of your real estate holdings during tax season. If you are looking to make a profit off of your holdings as a landlord, the various aspects of real estate depreciation can help you limit how much you owe and ultimately increase your yearly earnings.

How Depreciation Works

Depreciation is an especially useful tool if you are a rental property owner, allowing you to deduct short term losses for long term tax reduction. When filing your 1040, depreciation can shield you from additional taxation on your income by writing off costs of long term expenditures.

An example of this would be the replacement or repair of a faulty roofing installation. If this roof belongs to a building that you own—and that you depend on functioning properly to continue producing income—then the expense of replacement might be depreciable. The cost of the repair or modification is then deductible for the period of the repair’s lifetime, and usually subjected to the general depreciation system.

General Depreciation System – GDS

This system operates using the declining balance method, whereby each successive yearly deduction is reduced by the rate that the repair itself depreciates.

To continue with the previous example, assume that your roof costed $20,000 to replace. If we are to also assume that the roof will last 10 years, than your first year’s deduction will equal out to $2,000. This number comes from dividing the amount that the essential repair cost, by how many years of an expectant lifetime it has—in this example ten percent.

However, with each successive year, the declining balance of the roof will also mean that further deductions are reduced by ten percent. Therefore, by the second year, your deduction will be $1,800, the third $1,620, and so on.

Get Real Estate Depreciation on Your Side

If you are looking to limit the liability for your real estate holdings with depreciable expenses and other hidden deductions, contact GJR Consulting today. We are eager to help clients throughout the San Gabriel Valley with innovative tax services that keep you from paying more than legally necessary.


Accounting Experience in Real Estate

Posted on September 12th, 2016

In any of your financial ventures, whether professional or personal, it is ideal to have some degree of professional authority to guide you along. It is for this reason I believe CPAs (Certified Public Accountants) often branch out into fields other than basic or general accounting to lend their expertise to niche industries with specific demands.

In my experience, different specialties offer businesses and employers opportunities to examine their markets in previously untapped ways. Hence, I function not only as a CPA, but am a licensed realtor too.

Financial Planning in Real Estate
One field in which a CPA’s presence is salient is the real estate market. While real estate brokers are regularly trained to read patterns within market trends, accounting professionals are uniquely qualified to read the financial patterns of a that market, identifying correlations and making predictions on how the market will develop.

Your real estate investments can also greatly benefit from the business acumen of a savvy accountant in the real estate market. If you specialize in house flipping, a CPA’s financial planning and forecasting skills can be invaluable. In this way, you are given the ability to create viable budgets under our guidance as dually certified and licensed professionals not only trained in real estate, but business development as well.

Benefits before Escrow
As sellers in this market, you can also benefit from a broker who understands how the value of a property can be affected by an audit of assets. Additionally, financial professionals possess the skill necessary to argue for the full value of your property, as they can use current data and trends to predict future financial landscapes.

Leading into the escrow process, a skilled CPA acting as your real estate broker can use their experience in negotiation to sell your property for its highest value. You could also benefit from such a resource if renting property, thereby gaining its full value in accordance to the market.

Make the Most of your Real Estate – Visit GJR Consulting, Inc. in Covina
GJR Consulting, Inc. is eager to help you make the most out of your real estate transactions in Covina and the surrounding San Gabriel Valley area. We hope you will utilize our unique expertise and contact us today!


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