Real Estate Investors: How To Minimize Your Tax Liability This Year
How can real estate investors reduce their tax liability this year?
One of the great things about investing in real estate is the potential for a supersized income and great wealth gains. One side effect of that is having to pay taxes on that money. Most of us would rather make more, even if that means equal scaling of taxes. However, tackled poorly investors can be hit with big and unexpected tax bills. Handled well investors could find they are paying far less in tax in relation to what they would have paid at a regular day job. Smart and successful investors take taxes head on. They use it as a profit center which enables them to achieve above average performance.
What can be done to maximize net gains, while driving down tax bills?
Disclaimer: This report is designed for informational purposes only, and should not be taken as professional tax advice. Each investor should always seek out personalized tax advice from a professionally licensed expert before making any tax moves.
The Tax Benefits of Investing in Real Estate
Investing and in real estate is commonly associated with the following tax breaks and write-offs:
- Mortgage Interest Deduction (MID)
- Depreciation
- Small business car deductions
- Home office expenses
There are even more ways to substantially reduce tax exposure, and increase net gains, including the following.
Organize Your Business
Incorporate or register an official business entity and you may be entitled to another layer of tax breaks. That may include items like internet and phone service, devices, travel and entertainment, subscriptions, advertising, gifts, insurance costs, referral fees, payroll to assistants and staff.
1031 Exchanges
1031 exchanges are a powerful tool for buy and hold real estate investors. These legal tax deferring vehicles help investors avoid shedding thousands to the IRS when trading investment properties. Whatever amount of money is reinvested isn’t immediately taxable. That can give investors and extra double digits to accelerate income and wealth, while buying time to get into a lower tax bracket or build up other write-offs.
Retirement Account Contributions
Contributing to retirement accounts is a fast and simple way to reduce tax liability. Why put that money in Uncle Sam’s pocket when it could be working for you? Don’t like stocks or mutual funds? That’s okay. With a self-directed retirement account you can invest that money back into real estate. A Roth IRA will even deliver tax free returns. Special plans for small business owners lift contribution allowances to tens of thousands of dollars per year.
Better Accounting & Tax Preparation Practices
Once you seriously start investing in real estate it’s probably time to ditch the free online software, DIY tax prep, and HR Block type help. You’ll want a real CPA, and one who has experience with real estate investors. You want one who can help you navigate all the coming tax changes with the new White House administration, will minimize your liability, and do it all in a way which is legal and protects you from an IRS audit.
Find a professional who will give you personalized advice, and will work with you to create a year-round tax strategy and plan. Keeping great records year-round and planning your spending in advance can make a massive difference in your accounting costs, and tax bills, or lack of them.
Live Abroad
Those that spend more than 6 months abroad each year may be able to avoid having to pay taxes in the US as well. For those that already love to travel or dream of retiring to the Caribbean this could be a great play. Just make sure you consult an expert and determine exactly how to structure your income.
Whatever you do, embrace the tax issue, and use the legal options available to you in order to boost investment performance and net returns.
