I accidentally saved 200 people 💵 on their taxes

I stumbled upon a guru’s mistake and fixed it - which ended up saving more than 200 people money on their taxes.

All thanks to one of my clients, an online marketer, who decided to invest in short-term rentals to offset their business profit.

The Challenge:

An online marketer generating approximately $2.5 million in annual revenue approached us in May, seeking guidance on ways to reduce their tax bill. They were facing a potential tax liability of $200,000 and were introduced to a short-term rental guru who managed a portfolio of around 200 properties.

They thought that incorporating this real estate into their investment strategy would reduce their taxes for future years to come. Unfortunately, the guru’s accountant did not properly categorize these rental properties, and the online marketer was about to miss out on the write-off they were looking for. 

The (UN)Conventional Approach we took:

Our team at Nth Degree reviewed the tax returns prepared by the short-term rental guru's CPA, who specialized in short-term rental tax filings. 

We discovered a critical error: the CPA had reported the rental income on Schedule E (real estate) instead of Schedule C (business). 

This distinction is crucial because short-term rentals are treated as businesses by the IRS, allowing investors to claim losses through accelerated depreciation without requiring Real Estate Professional Status (a threshold most business owners can’t reach unless they make real estate their full-time gig)..

The Solution:

We brought this error to the attention of the CPA, citing the IRS guidance that clarified the proper reporting of short-term rentals. As a result, the CPA had to amend the returns for not only our client but also the guru's 200+ other investment partners.

The Impact:

Our client saved $200,000 in taxes, and hundreds of other investors benefited from the proper tax treatment of their short-term rentals. This case demonstrates the value of proactive tax planning and the importance of working with advisors who stay current with tax law changes.

The Counterfactual:

Had we not caught this error, our client and the 200+ other investors would have likely continued to overpay their taxes, potentially for years to come. This oversight could have cost them collectively millions of dollars in lost savings and missed investment opportunities.

The cool part?

The cool part of this story is that the money saved extended far beyond our client. By identifying and correcting this error, we were able to create a ripple effect that positively impacted hundreds of other investors, showcasing the true value of expert tax planning and advisory services.

This isn’t even a new tax situation, this 2022 Forbes article details the tax laws for short-term rentals.

Yet, for a host of reasons, many accountants miss key laws and stipulations like this.

If you’re a business owner or investor considering short-term rentals or other complex assets, it’s crucial to work with a team of advisors who deeply understand the tax implications of your specific situation.

By staying up-to-date with the latest tax laws and guidance, you can identify opportunities to minimize your tax liability and maximize your wealth for years to come.

Here’s to your success and financial certainty,

Warm regards,

Dan Nicholson

Founder, Nth Degree CPAs
Author of “Rigging the Game”

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