Let’s talk about taxes. If you are already groaning, you are going to want to read this. The trick with taxes is creating a strategy a year ahead, executing your plan during the year, and reaping the benefits the following year.
Tax strategy is different from tax planning and tax execution. You start by creating your strategy a year in advance. This blog is a quick run down of tips you can research that will help you plan for maximum deductions next year.
Disclaimer: These are strategies from the perspective of a real estate businessman and not a CPA!
Tips to Consider as you Create Your Tax Strategy:
First things first. From a real estate standpoint the best thing you can do is get Real Estate Professional status. This allows you to utilize all the strategies I refer to in this blog.
1. The business entity (LLC, S-Corps, etc), that you set up will determine your qualified business deductions and therefore your tax plan and liability. Depending on which entity you set up you can potentially write off your real estate education (which is normally quite limited). With certain business structures however, education falls under a growth and development deductible.
2. Retirement plan accounts can be great deductions. Traditional 401k’s can be written off on your taxes if they are from pre-tax money. (I use my IRA, 401k’s and even our life insurance plans).
Pro-tip: Use the IRS’s playbook to find ways to make your taxes work for you.
3. Your real estate can be extremely valuable if you know how to use it. You can calculate depreciations that save you big money on your taxes!
4. For any companies that offer employee benefits such as medical, dental, etc., you can utilize Section 125.
5. Cost segregation: single family rentals, Airbnb’s, apartment buildings, there are bonus depreciations through cost segregation. You can write off your passive gains as well as your active gains.
6. You can shift some of your business income to a lower tax bracket income by hiring people who are not yet independent adults. Does your teen need a job? Put them on payroll!
7. Qualified opportunity zone funds. Take some capital gains and invest to defer taxes for some time and possibly even have them forgiven.
8. Have you heard of doing a 1031? This year was my first time taking profit from the sale of one property and investing it right back into another property.
9. Section 179 is a hidden gem! This deduction can save you thousands with vehicles (cars, and even planes) bought for business use. We have an entire podcast just on this!
10. What we tend to forget is that all of these professional investments we make on coaches, masterminds, and education that helps us, are actually tax write-offs and deductions. Take our Mastermind for example, if you structure your business entity and your tax plan right, you can write off half the cost of the program on your taxes. It pays to invest in yourself.
Pro-tip: If you plan ahead and invest in yourself early you can plan the deduction for specific years based on your tax needs. So buy your weekend seminar tickets Dec. 31 instead of Jan. 27th, get the write off the year before, and enjoy the benefits the following year!
You can do pre-planned spending with anything. Spend money you were already going to spend on marketing etc., but do it ahead of time so the deduction hits the current year. This is all part of your strategy when you create your tax plan. Research, strategize, plan, execute.
By the time tax season rolls around you will be resting easy, because you know you maximized your income by planning ahead!