The rental income received by an individual is reported on Schedule E on Form 1040. The way it is reported is very simple if the rental income information is maintained in a very  organized way. A very good way of organizing the rental information is by maintaining a log book/ spreadsheet and naming the columns as follows:

• Item name
• Invoice for rent due
• Expenses incurred on the properties(listed below in tax deductible expenses)
• Payment of rent received
• Deposit made in the bank

Also, for recording rental income from accounting point of view, you can make the following journal entry:

Entry when rent is due:

DR: rent receivables CR rent income

 

Entry when payment has been received: 

DR cash or cash on bank Cr to rent receivables, this way you will close the rent receivables account because you received the expected amount.

Rental Income reporting in your tax return Form 1040

 

In taxation, if you have rented out your property, its considered to be a passive activity. In a way it means that even if you devote a substantial amount of time to selecting the right tenants, in repairs & inspection of the rental unit,still it is considered to be passive. The IRS has limited your losses from rental business to a maximum $25,000 per annum which includes losses from all your rental properties.

 

How the landlords should treat rental income property expenses on tax return Form 1040

The landlords can claim the following expense tax deductions:

• Interest
• Depreciation
• Travel
• Travel-long distance
• Repairs
• Employees costs
• Theft losses
• Insurance
• Legal fee

 

So, general expenses faced by landlords such as repairing or replacing a roof, or cleaning an apartment after a long-term tenant leaves. But whatever the expense is, even if it is more than $25,000 it can be deducted but at the max upto $ 25,000 from all the properties.The balance loss will be carried over to next year, which can be set off against any incomes in the next year.

There are several very good rental income softwares in the market that allow you to keep appropriate records for rental income reporting & Turbo tax is such a tax software that allows you to handle any kind of income reporting on your Form 1040. It helps you get more & over & above deductions against your rental income that you might have missed to take into account.

 

2012 Tax return filing season is approaching fast. One of the best ways to claim bigger refunds or for lowering the dues owned to IRS is by claiming higher deductions

There can be lot of areas where the tax deductions can be claimed each year. Last year federal government was givig a lot of benefits to car owners as well as home owners. I guess there are people who were able to reducw their liability by 1000s of $$ by just claiming home owner deductions.

This year the IRS schemes don't look to be as strong as last year, but in 2012 tax return filing, the homeowner tax deduction is still a very popular area where a person can claim substantial tax deductions and reduce their liability towards IRS.

Click on this link to know more about 2012 Tax deductions for homeowners

Amendment of a tax return is very common step taken by many tax payers. Its always better that if some mistake is committed, fix it & file an amended tax return rather than IRS finding out something & you get hit by interest & penalties etc.The IRS encounters thousands annually. The IRS has created ways for taxpayers to Amend Tax Returns that were filed incorrectly.

You don't need to worry about math errors.The IRS generally corrects math errors on tax returns so receiving a letter about a math error does not mean that you need to amend your tax return. Also, IRS usually requests forms that are missing e.g.  a W-2  when they process original returns. If the IRS has done work upto this level, there is no need to file an Amended Tax Return. But remember, a tax return can only be amended within 3 years of the date you filed it or within a period of 2 years starting from the date of your most recent payment.

Now, comes the question that when filing an Amended Tax Return is necessary. If any of the following was reported incorrectly, you should file an Amended Return:

• Your Filing Status
• Your Dependents
• Your Total Income
• Your Deduction or Credits

Here is the method for Filing an Amended Tax Return

1. You are supposed to use Form 1040X for an "Amended U.S. Individual Income Tax Return."
2. Here's how to fill 1040X- Start with writing the year of the Return you are Amending at the top of Form 1040X. Remember, for every original tax return year, you have to file a separate 1040X. Prepare a separate 1040X form for each Tax Return & also mail them in separate envelopes.
3. After completing form 1040X, mail the envelope containing the Amended Tax Form to your area's IRS processing center. The Form 1040X instructions shall list the addresses for your area's IRS processing center.

Don't panic, if you realize that something went wrong, its always possible to amend it. So, go ahead & file an amended tax return on Form 1040X either yourself or you can always use the help of an Enrolled Agent with IRS or a CPA or sitting at home with user friendly tax softwares like Turbotax!!

For salary expense to be deductible:

-The compensation must be ordinary and necessary,

- reasonable in amount,

- should be based on services rendered, and

- actually paid or incurred in the year for which the deduction is claimed (which is as shown by your payroll records).

The timing of your deduction depends on which method of accounting you use. In other words, the cash or accrual method of accounting.

If you use the cash method, you must deduct your expense for the salary, wage, or benefit payment in the year it's paid to the employee.

If you use the accrual method, you must deduct the expense when you commit your obligation to make the payment and when the services are performed, it doesn't matter that the actual paycheck is distributed later.

If, by any chance, the compensation is paid in some form other than cash, the deductible amount is computed by calculating the fair market value of the property transferred. For example, if you give your employees laptops at Christmas, the cost you paid for the gifts would be deductible.

The main question is that what is "reasonable" compensation?? It generally depends upon the facts and circumstances at the time the compensation is paid. Generally, the IRS does not challenge the amount of the compensation as unreasonable unless & until the employee has some control over the employer or has some personal relationship with the owners. Such examples include: if employee has a large stock ownership in the employer organization or he/she is related to the organization's key personnel.

So, to all the employees out there, before the tax sason 2012 comes, just pay attention to your employer employee relationships to determine that you qualify for deductible salary expense for employees.