August 7, 2015
Developers and Landlords have very specific and specialized accounting needs. Something like fifteen years ago, I picked up my first larger Landlord / Developer as a client.
He had not filed an income tax return in three years. Property prices were very high, and he had not purchased anything in quite some time. I say this because he never pays any income tax having depreciation on over 50 properties. In his mind at that time, he only needed an income tax return for his financing needs.
That year, the IRS started a new compliance program. When you get three years of more behind in your income tax returns, they will take a look at what they have on file for your Social Security Number or Employer Identification Number. (The IRS gets copies of all of your W-2’s and 1099’s.) They will send out letters demanding that you file your older returns. If you do not, they will prepare one for you. They pick up every thing they have as income, and deduct nothing. Then they send out an income tax bill and ask you if it is okay. In this instance, he had $2.5 million in 1099’s. so the IRS sent him a tax bill for over $1 million once they added penalties and interest.
The client almost had a heart attack on the spot. He contacted my developer accounting firm and we got to work.
Accounting and tax preparation for Developers and Landlords is normally quite challenging because they are always moving money from one entity to another that needs it. You have three projects in three different states that are producing large amounts of cash. You are in the middle of two other projects that are using most of that cash. Maybe one of those projects is stuck given permits, zoning, or other local problems. Making sure that the inter-company transactions are handled properly in the Due To and Due From accounts is mandatory.
Depreciation, and the separation of hard and soft costs can also be rather challenging. Understanding that once you make an election, you have to stick with it. You can’t flip flop from one election to another based upon the taxable events of the year in question. Add in the process of splitting all of the expenses into the correct project, and you can begin to understand some of the difficulties that we handle.
With the client that I first mentioned, we completed the income tax returns for the year in question that the IRS had butchered. Once submitted, it took a while but we did receive an updated letter showing an amount due of zero. We got him into compliance and kept him there normally filing the returns inside the extension period.
Since I originally met him, his business has blossomed. In the past several years, with building prices down he has gone on a buying spree purchasing not less than five or six properties annually.
And he’s yet to pay a dime in income tax because of all of his depreciation.
If you are having problems with your Developer Accounting Firm Chicago Illinois or have issues with your taxes in general, we would love to help. I can be contacted at
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Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.