• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

The Booming Appraisal Market and Income Tax

Status
Not open for further replies.

Brad in SAC

Freshman Member
Joined
Jan 25, 2002
This past year was a great one for appraisers. With the low interest rates and a high demand for appraisals, many of us had record breaking levels of income in 2002.

If interest rates go up, surely the demand for appraisals will go down. I am concerned that if this happens I will find myself in the 15% tax bracket, yet this year I'm paying some tax at the 38% rate and the majority of it at the 27% rate.

This is the problem:
15.3% Social Securoty (Up to $85,000)
38% income tax
8% state income tax (California)
This equals 61% in taxes without mentioning sales tax. (I know this is the marginal rate and not the total rate)

This year I am not going to work 75 hour weeks if I have to 61% in taxes. It just is not worth it.

Other than an IRA or SEP, is their any way to shelter some of this years income from taxes and claim it in a low income year?
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Brad

You must have been listening into my thoughts over the past couple of weeks.

I've asked myself what good is a nice six figure income if you don't have time to enjoy the fruits of your labor and if so much of your time has to be spent just working to make the money to pay the taxes?

I've looked at the numbers and have decided that there are a certain number of reports I can comfortably generate per week and lead a “normal” lifestyle. This number of reports and the income generated from them has been compared to my expenses and living costs. We found that we can easily and comfortably live on the amount generated by that income. It also means that there will be more time for the family, for fishing and hunting and weekends that are not spent writing reports.

If the government won't give me a real tax cut, I will give one to myself by simply reducing my income. In addition, I'll also be giving myself time to play and enjoy life a lot more. I think the days of doing record numbers of reports are over for me.
 

jtrotta

Senior Member
Joined
Jan 16, 2002
Richard, nice photo :)

yep, if ya don't remember how much Tax Dollars you donated to yer local state & Fed Gomnt., it's always a wake up call at years end. I have to agree with you 100%, pick the cream off the top and let the rest fly or hire someone to do that work. 60% +/- is a large portion of your income to give up to anyone; if ya earn $100 and give up over 50% for taxes, how much are ya really earning :?:

many, many years ago in the construction field I remember the first overtime job I got involved in; had to give up my Saturday for all this Extra (so called) money - after a couple of times, I looked at what the OT really amounted to and stopped; it was well over 40% of what I earned that day - felt it wasn't worth it, so we stopped doing it and enjoyed our weekends.

greater satisfaction, less stressful life :wink:

8)
 

xmrdfghap

Senior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
Florida
...........is their any way to shelter some of this years income from taxes and claim it in a low income year?

<span style='color:brown'>Yes. Income averaging is possible. But talk to your tax professional not us.

If you have long term prospects of 6 figure or more income, you need to talk to a trust attorney. If you establish a irrevocable trust and allow it to own your business (a trust can own an LLC or C-Corp....it cannot be an owner of an S-Corp), then you can be taxed on trust distributions rather than income. Investments you would make as an idividual you can make (with the agreement of the Trustee....so make sure you get one you know and like and trust) through the trust, and again, although the portfolio grows, the proceeds of the investmets will be taxed when they are distributed, not when they are earned.

You lose some control, but you can provide for future generations that way......it also allows you to avoid the "death tax" that seems to be on so many peoples minds these days.</span>
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
As Goodpasture points out, there are ways via attorneys, trusts etc. to skirt the issue of paying taxes and to preserve your income. This only goes to point out the sad state of the tax laws in this country.

When ordinary, hard working, independent business people must resort to tax law gimmicks, subterfuge and dodges to keep their own very hard earned money, all the while making tax lawyers richer, you have a situation that is not only unfair but totally beyond justification.
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
61% in Taxes amazing. Magna Carter (SP) was as history indicates fought for so that people could at least keep 50% of their earnings way way way way back when. Now your past what used to be paid in taxes.

Ryan
 

Karl

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Arizona
Like a GOOD Appraiser A GOOD CPA is worth paying more for
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
I'm considering setting up a REIT for myself to move my SEP and IRA money into since entry level rental housing makes a much better investment than the stock market.

Roger
 

xmrdfghap

Senior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
Florida

If interest rates go up, surely the demand for appraisals will go down. I am concerned that if this happens I will find myself in the 15% tax bracket, yet this year I'm paying some tax at the 38% rate and the majority of it at the 27% rate.

This is the problem:
15.3% Social Securoty (Up to $85,000)
38% income tax
8% state income tax (California)
This equals 61% in taxes without mentioning sales tax. (I know this is the marginal rate and not the total rate)

<span style='color:brown'>
The portion you are paying at 27% is that portion of your income that falls between $4,363 and $9,317 per month. Everything lower is at a lower rate, and everything more is at a higher rate.

Your "marginal rate" is about 50% higher than it really is.......

You only pay 38% on that portion of your income that exceeds $26,404 per month. On the amount up to $26,404 you pay a total of $7,559.28. (That is 28.6%, NOT 38%) But, if you make a total of $45,000 PER MONTH, your tax rate is 32.7%. If you are making $45,000 per month, in 9 weeks you will not be paying self emplyment tax (that 15.3% you were talking about).

So, I do not know what the California tax rates are, but assuming that you are right about it being 8% straight across the full income, you will be paying 56% for the first 9 weeks of the year, they your tax rate drops to 40.7% for the rest of the year. This equates to about 43.25% per month....certainly a far cry from 61%. That will translate to a total tax liability (state and federal) of $233,550 leaving you a total of $306,450 to pay your bills and bass fish. That works out to $841.00 per day. How much more do you need? (I know, it is not nearly as much as you want......)

The above figures are according to current rate tables and apply to TAXABLE INCOME only. If you are making that much money and it is all being taxed, you need to enroll NOW in a financial planning course or find a GOOD financial councelor (get a fee planner....one who is not trying to sell something).

Bottom line, we have one of the least expensive tax systems in the modern world. I understand the grip when y9ou cut the four estimated tax payments checks for over $50,000 each, but for that you get good roads, good food, good water, the ability to sleep at night, reasonable expectation you will get to die before your children do, confidence that the lights will go on when the switch is thrown, the confidence that if you get sick there is an ambulance within 15 minutes of almost anywhere in the country, and the ability to ===== about the government, and where we can focus on the sex lives of our presidents and movie stars.....to me, it is cheap at twice the price.</span>
 

Eminent Domain

Junior Member
Joined
Jan 19, 2002
Professional Status
Certified General Appraiser
State
North Carolina
Check into an S-Corp. Some of the income can be distributed as a dividend or equity distribution. You still pay income tax but can avoid the 15.3% for SSI on the dividend portion of your income.

BF
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks