Tax Return Tuesday #3 - Schedule E Part 1

Happy tax return Tuesday. Today's must know tax return tip for family lawyers is Schedule E.

Schedule E is too much to cover in one sitting so we’ll break it in parts. Lets talk Part I.

Part I of Schedule E will report income from rental real estate and royalties. This could include real estate held directly or through a single member LLC.

From a discovery perspective, it will be crucial to request balance sheets or other supporting documents for any rental properties contained in Part I of Schedule E, since other assets such as a cash account, AR, and liabilities, such as a mortgage are not reported here.

From an income determination perspective, we will also need the balance sheets, because distributions are not reported on Schedule E. For real estate investors, distributions are a primary source of return, not the income reported on Schedule E Part 1. Schedule E income may also include non-cash charges, such as depreciation and amortization.

Since Schedule E Part 1 also reports royalties. If those are present, additional requests to understand the amount and duration of such royalties will likely be necessary.

Make sure to always check Schedule E Part 1 to make sure no rental properties or royalty streams slip through the cracks. Also be sure to request additional documents when necessary. Check out the example below👇