Revocable vs Irrevocable Trusts: Which is Better for Asset Protection and Taxes?

In this episode of Tax Tuesday, Toby Mathis and Jeff Webb of Anderson Advisors provide answers to your tax questions. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

• I bought a property in Georgia in 2021, doing renovations and repairs, planning to rent it out in March 2022. I didn't collect rents in 2021, so, I can't claim this property on my 2021 tax return, correct? Can I deduct the expenses ahead for renovations in 2021 in my next year's tax return, 2022? Correct, you cannot claim those deductions in 2021. They don't disappear, but what happens is the majority of those renovation and repair expenses go into the basis of your property. You will get to depreciate them if you do cost segregation.
• Is YouTube income considered passive or active? It depends on whether you're passively or actively participating. What matters is a test for material participation.
• I manage properties for a relative as an employee of a C-Corp. During a banking transaction, I personally received the rents through Zelle in 2021, the start of 2022. Those rents were then redeposited into the property owner's personal bank account. Will I have a problem with my 2021 tax return? Do I need to issue a 1099 to the property owner for 2022? Never accept payments in your personal name that belonged to somebody else. You're not going to have a problem, but if you did receive a 1099 for this money, then issue a 1099 back to whoever the money was paid to.
• Can you elaborate on revocable versus irrevocable trust from a tax standpoint? A revocable trust is almost like a disregarded entity. It's good for protecting assets—your estate and so forth—from probate, but you can change it every day if you want. The revocable trust is taxed as though it doesn't exist.

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Resources:

Schedule A

https://www.irs.gov/forms-pubs/about-schedule-a-form-1040

Schedule B

https://www.irs.gov/forms-pubs/about-schedule-b-form-1040

Schedule C

https://www.irs.gov/forms-pubs/about-schedule-c-form-1040

Self-Employment Tax

https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes

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https://andersonadvisors.com/tobymathis-2/

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