Once you are self employed you are obliged to keep proper books and records which we will cover in another post

The first call my husband and I made after closing in March on a two-family house in Brooklyn, New York, was to a rental agent. We were becoming landlords and we wanted to get tenants into the ground-floor apartment before our first mortgage payment was due.

After hearing throughout the housing downturn about the problems of “reluctant” and “accidental” landlords who rented because they couldn’t sell, we found ourselves among a new breed of homeowner: post-bubble opportunists.

For us, today’s market is downright rosy because of declining and flat real estate prices, interest rates near their historic lows, favorable tax breaks and strong growth in rental income. We are swelling the ranks of homeowners who claim rental income on their personal tax returns – 9.3 million in 2009, the last year figures were available from the Internal Revenue Service, up from 8.3 million in 2003.

“People are out there actively trying to buy properties,” says Tara-Nicholle Nelson, real estate broker, attorney and founder of the Rethink Real Estate website(RethinkRealEstate.com). “Prices are not just dropping, but staying low. Interest rates are not just dropping, but staying low. And former homeowners aren’t able to buy,” so there are more people looking to rent.

Some would-be homeowners may find that buying a home and renting it out for a while before moving into it is one way to afford a home they couldn’t otherwise carry. For those with second homes, short-term rentals could cover costs while they’re not using it.

“Today, there are people who never intended to be landlords, but they are saying, there is a demand, the economy is moving, and I need to move, so I’m going to turn my real estate into an investment,” says Kimberly Smith, who operates two business that deal with corporate rentals: AvenueWest Corporate Housing and Corporate Housing by Owner (CHBO; CorporateHousingByOwner.com).

One of her clients, Kinsley Hamilton, owns a two-bedroom loft in Denver, but rents it out for short-term leases and lives 13 blocks away in a shared house. The rental income now covers her $1,350 mortgage and she pays only $400 a month to live down the street. The 28-year-old website developer says, overall, she’s an extremely grateful landlord.

“It comes with responsibilities that I wish I didn’t have to have, but it’s a lot better than the alternative of foreclosure or debt,” she said.

While the dynamics of the recent housing decline make now a particularly good time to jump in, wait any longer and things could change.

“We think housing values will drop more and hit a definitive bottom in early 2013 and rents will go up again in 2012,” says Stan Humphries, chief economist at Zillow, which just launched a weekly Rent Index because of the growing demand for information about rents (link.reuters.com/fug37s).

“But you’re going to see another flip as you go forward now,” cautions Mark Steber, Chief Tax Officer with Jackson Hewitt Tax Service.

He and Humphries foresee a time when housing prices recover, interest rates creep up and rents level off or fall.

The situation leaves most new or prospective landlords with a lot of questions. Here are answers to the most common ones:

1. How do I screen tenants?

Don’t go by your gut, says real estate consultant Danielle Babb, a landlord of four properties.

“I’ll tell people to look at the car they are driving up in. If it’s dirty and messy, take note,” she says.

She also says to ask for a canceled rent check from their current landlord and to make sure that references are not just friends who have been prepped. She usually points people to the Landlord Protection Agency (thelpa.com) to get essential forms and find out how and when to do background checks.

2. What can I charge?

Babb points to a website called Rentometer.com, where people list their apartment rents so users can compare. Zillow’s Rent Index provides details down to the zip code level of average rents. After you crunch the numbers, be patient, says Smith, of CHBO. She says that her own personal rental properties had a negative cash flow from 2008-2009, but that rents have picked up and she is now in the black.

3. What if things go wrong?

One hedge against damage is a rental property insurance policy, which differs from a homeowners policy mainly by having coverage for the structure, but not for the personal property inside – which means a landlord should encourage tenants to get their own renter’s policy for their personal items.

“It also can provide fair rental value, so if you have a tenant in the house and there’s a fire, the insurance will cover lost rental income,” says Eric Vaith, who sells these policies for USAA.

Since his clients mostly are associated with the military and many owners rent out their houses when they change assignments, the company has doubled sales of rental property insurance policies in the last two years.

But note that insurance will not cover for tenants who simply don’t pay, or extended vacancies when you can’t find a tenant. For those, you need cash on hand to cover the mortgage on your own.

4. What do I file on my taxes?

Schedule E will be your friend once you are a landlord.

“You need to keep receipts for all of your expenses. You also have to take depreciation on the residence,” says Lindsey Buchholz, lead tax analyst for H&R Block.

Those at qualifying income levels, below $150,000 for a married couple filing jointly, can actually take a loss off their net income, lowering their tax burden even more than just with the real estate tax and the mortgage interest deductions. In 2009, the 9.3 million filers racked up about $267 billion in rental income, but those filers actually claimed more than that in expenses and depreciation, with the net difference being $11 billion in total losses.

“You wouldn’t want to become a landlord just for income-tax reasons,” says Jackson-Hewitt’s Steber.

But for new landlords like us, those tax benefits are going to make us extremely happy every April.

You can go the traditional route and post a cheque Collector-General’s Division ,Sarsfield House, Francis Street, Limerick. I generally wouldn’t recommend this as it doesn’t provide a proof of payment like some of the other methods and the cheque may get lost somewhere along the way. Also cheques generally cost more than other payment methods.

Laser or other debit card , When you hit the payment screen on the revenue there is a drop down for “Debit Card Payment”

Online Banking – A new addition to ROS this year allows Bank of Ireland and AIB customer to pay their tax bill using online banking

ROS users may also set up a ROS debit instruction allowing them to make a payment directly from their bank account to the collector general. This is very simple to set up and can assist with cashflow planning as the user decides when to make the payment.

For example in the tax year 2010 Niamh, a sole trader makes a tax loss in her trade , but pays tax in her part time PAYE position, the sole trader (Case I) loss can be offset against the tax paid in the PAYE position.

If there is no other income to offset the loss against then the loss can be carried forward. But if carried forward the loss can only be used to offset profits in the same trade.

To do this Niamh should enter the loss at line 112 on the return.

If you require any advice on the matters above please do not hesitate to contact Ralph on 01 – 4800531

If you hire sub contractors on a regular basis this is an area you should pay attention to as the penalties and fines could be significant.

He/she is an employee if some or all of the following apply:

Is under the control of another person who directs as to how, when and where the work is to be carried out
Works set hours or a given number of hours per week or month
Does not supply materials for the job
Does not provide equipment other than the small tools of the trade
Is not exposed to personal financial risk in carrying out the work
Receives a fixed hourly/weekly/monthly wage
Is entitled to extra pay or time off for overtime
Is entitled to sick pay
Receives expense payments to cover subsistence and/or travel expenses
Supplies labour only
Cannot subcontact the work
Does not assume any responsibility for investment and management in the business
Does not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks arising from the engagements
Will normally be covered under the employer’s public liability insurance
Works for one person or for one business

He/she is self-employed if some or all of the following apply:

Has control over what is done, how it is done, when and where it is done and whether he or she does it personally
(In the construction sector for health and safety reasons, all individuals are under the direction of the site foreman/overseer. The self-employed individual controls the method to be employed in carrying out the work.)
Controls the hours of work in fulfilling the obligations of the contract
Provides the materials for the job
Provides equipment and machinery necessary for the job, other than the small tools of the trade
Is exposed to financial risk, by having to bear the cost of making good faulty or substandard work carried out under the contract
Costs and agrees a price for the job
Receives an agreed contract payment(s) without entitlement to pay for overtime, holidays, country money, travel and subsistence or other expense payments
Is free to hire other people, on his or her terms, to do the work which has been agreed to be undertaken
Assumes responsibility for investment and management in the enterprise
Has the opportunity to profit from sound management in the scheduling and performance of engagements and tasks
Provides his or her own insurance cover as appropriate e.g. public liability insurance, etc
Owns his or her own business
Can provide the same services to more than one person or business at the same time
It should be noted that:

A worker paid by results (piece worker, commission, by share) is not automatically a self-employed contractor;
The fact that an individual has registered for self-assessment or VAT under the principles of self-assessment does not automatically mean that he or she is self-employed;
A worker who is a self-employed contractor in one job is not necessarily self-employed in the next job. Each job must be looked at separately.

For further details CPD Galway

I went to check out the site to see how it looked and its a very good phishing attempt.

As you can see they have obviously spent time matching AIB’s theme and design right down to showing AIB’s actual phishing alert email address.

Some very obvious signs the page is fraudulent are

Firstly the URL,

AIB links to its online banking service from AIB.IE if AIB.IE is not the URL then its not AIB

Secondly the phishing page is asking you to enter your eight digit registration number on a page which is not secure.

Below I have the genuine and fraudulent address bars. You can see that the fraudulent site does not have the HTTPS, If the ‘S’ is not in the address bar then don’t ever enter your banking or any secure details.

AIB Genuine Log in URL

AIB Fraudulent Log In

About the Author : Ralph Smith is an Incorporated Public Accountant and Member of the Association of Certified Fraud Examiners
 
For training on Fraud Prevention please visit Fraud Prevention Training

1. Check your records, If you miss a sales invoice you could understate your tax and ultimately be fined, if you miss a purchase/ expense invoice  you could pay more tax than you need to (Not good)
2. Try to avoid the shoe box of doom. Sending your accountant a shoebox full of paperwork will increase your bill as they have to spend time sorting through it and entering the data. If your too busy / lazy to send in an excel sheet with your information at least use a tool like Plendi to capture the data.
3. Don’t put crazy expenses in. Unless their protective you cant claim for shoes, so take the receipt out for the Jimmy Choo’s
4.  Read the revenue guide to allowable expenses
5. If you are a company director or employee ensure you claim your correct mileage and subsistence 
6. When you get your accounts back from your accountant take a careful look at them. Are your sales down on a previous year? Are your expenses up? Use the information to improve your business.
7. Don’t forget your medical expenses ,service charges and rent tax credits



8. If you’ve gotten married recently or are in a civil partnership make sure the revenue know. 
9. Certain social welfare payments are taxable. If you received one during the year be sure to check if yours is, Even if its not taxable it may have to be shown on the return.
10. If you can’t afford to pay your tax bill speak to the revenue as soon as possible. If you ignore it they will take action. If you contact them and make payment plans you can work it out.

Heres my solution

How to store phone numbers in excel