Tax Planning For Real Estate Investors and Small Business Owners
Tax Planning is 100% legal and allowed by the IRS. In fact, the IRS’ legal loopholes that it provides to small business owners is what forms the basis of Tax Planning.
Tax planning encompasses maximizing deductions, choosing the right entity structure, retirement planning, insurance and asset protection, loopholes, the CARES Act, real estate specific strategies and some advanced tax saving strategies, tax advantaged wealth management, exit and capital gains and much more. Here are three of the hundreds of tax savings strategies below:
OWN SELF DIRECTED RETIREMENT ACCOUNTS SUCH AS A SOLO(K) ACCOUNT
Have a custodian
Open a self directed retirement account such as a Solo(k) and
Invest in a property down the street or invest in
Oil & natural gas investments, SFH, MFH, duplexes, triplexes, REITs, LLC stakes, Promissory Notes even invest in cousin’s start up business and much more.
Unlimited Benefits Of Having A Solo(K) Account
Diversify
Spread The Risk
Massive Savings In Money
Be Able To Move Around Money Between Various Investments
Achieve High Overall Growth Over Long Term
Be Able To Make Tax Free Money
Have Tax Deferred Growth
Have Tax Free Money At Retirement
Be Able To Pass On Money Tax Free To Your Heirs
Not many Investors, Syndicators, Landlords, CPAs and Accountants know of it.
Who can have a Self Directed Account?
- If you are eligible to have a regular IRA or a Roth IRA, then you are eligible to have a self directed IRA or a ROTH IRA.
- If you are eligible to open a SEP-IRA or a Solo(k) for your business, then you can open a self directed SEP-IRA or a self directed Solo 401(k).
- You don’t need to own a business or a legal entity in order to have a self directed retirement account.
- You can use your 401(k) money towards a Solo(k) and once that money is into the account, you can use it to invest in rental real estate and increase your returns.
TAKE ACCELERATED DEPRECIATION ALSO KNOWN AS COST SEGREGATION ON YOUR RENTAL PROPERTIES
Old way..
- Not knowing what accelerated depreciation is and how to take it.
- What might be the impact and how will it help deepen losses on rental properties?
- Might not have long term savings and might have to pay back to the IRS in the form of Depreciation Recapture Tax at the time of disposing of the property.
- Rather than wait for 27.5 or 39 years to take advantage of, you can now expedite losses and take them within 5 years for some of the assets.
Did you know that…
It’s possible to create depreciation deductions of up to 20%-40% of the purchase price of the real estate.
Cost Seg defined
Cost segregation is a valuable tax strategy for real estate investors that is designed to accelerate depreciation expense into current years rather than waiting to take it slowly over time.
- It is important to note that cost segregation does not mean you received any extra depreciation.
- It simply means that you are speeding it up and receiving the tax benefit today rather than waiting to receive it over 27.5 years.
- Examples of other commonly found depreciable assets on rentals can include flooring, appliances, roof,cabinets, countertops, fixtures, drywall, plumbing, specialty plumbing, sidewalks, and HVAC.
Bottom line:
- Cost Seg is a scientific study and is professionally conducted by companies.
- These companies hire engineers/architects to complete the analysis and deliver results.
- They can be expensive.
- Can be conducted on some SFH, most MFH, duplexes, triplexes, apartments etc.
- The best time to decide whether to do a cost segregation is when you know how much in taxes you would actually save.
- The cost segregation does need to be done before the tax return is filed.
- Can be carried out after the end of the financial year as well.
LIVE AND INVEST IN THE SOUTHERN STATES, TAX FREE STATES AND EVEN INLAND AMERICA. TAX FREE STATES ARE TEXAS, FLORIDA, NEVADA, NEW HAMPSHIRE, WYOMING, TENNESSEE ETC. AND AVOID CALIFORNIA, DC AND NEW YORK.
Old way..
Moved to states with a high cost of living such as California ,DC, NJ or New York to get a job or start a business.
- Bigger economies meant more opportunities.
- Average cost of a SFH in California: $683,000 and DC: $691,997( Yr 2020).
- Pay higher rents, higher bills, higher taxes, higher property taxes, higher down payments.
- Highly competitive, expensive, leading to limited inventory, creates cash flow bottlenecks, leads to stress
- There are now newer ways to save mone.
- Move to the southern states or even tax free states.
- Low cost of living, low real estate value, low down payments, low property taxes, low taxes overall.
New Way
Move to the southern states or even tax free states. Living in such states means low cost of living, low real estate value, low down payments, low property taxes and lower taxes overall.
Tax Free States such as:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
And
- Invest in properties that require lower initial down payment investment
- More and cheaper inventory is available.
- Average cost of SFH in Oklahoma: $167k or Kentucky: $168k
So as an Investor or a Landlord...
If you use self-directed retirement accounts for investing and diversifying your portfolio and
And you..
- Get cost segregation done and do not forget to take depreciation as an expense.
And....
- Live and invest in the southern states or even inland America.
- You can 10X your savings and multiply your wealth 50X (exponentially?) before you retire, mostly TAX FREE!
In order to schedule a Tax Planning session, we will need a copy of your last filed tax return and perhaps an additional questionnaire. A proposal will then be prepared that will include the following details:
- Prior year estimated overpayment
- Current year estimated savings
- Future year estimated savings
- Detailed listing of strategies with supporting documents
- Estimated savings per strategy