Most of us business owners have just finished dealing with the annual tax season. And, if you’re a money-minded real estate investor, you’re likely already thinking of ways to come out on top next year.
Being involved in the real estate business provides plenty of tax benefits that aren’t available to everyone else. This is just one of many perks that draws smart and financially-savvy individuals to start investing in properties!
My first piece of advice is to hire an excellent real estate-friendly CPA to help you at tax time. My second tip is to be an informed and strategic taxpayer by educating yourself on the process.
Below are some basic principles to help you rethink your personal tax strategy as a real estate investor.
Capitalize on Deductions & Benefits
So many people are missing out on big tax deductions, simply because they aren’t informed. Whether they are for your personal taxes or your business, these deductions can make or break your refund. So, it’s best to save receipts for all your big purchases.
From business-related travel, to expenses for your home office, to mortgage interest and depreciations on your properties, real estate investors have some of the best opportunities to deduct big money from their annual tax burden.
There also happen to be completely legitimate tricks within the tax code you can use to lower or defer your taxes on real estate – like exchanging a property you own for another, and paying less taxes on the gains through a 1031 exchange. When it comes down to it, all you need to cash in on tax benefits is to understand the timing, protocols and paperwork involved with these deals.
When it comes to your taxes, a good CPA can often help you to find the very best deductions for your situation. However, it’s important to always be cognizant of the expenses you make and how they may benefit you at tax time.
Strategize the Year’s End
By strategizing what you’re going to do during the last few months of the year, you can maximize your deductions and reduce your taxable income even more. You’ll do it by taking care of some major business and real estate expenses during the last few months of the year.
By utilizing these expenses in ways that will significantly lower your overall tax liability. Real estate investors can deduct things like materials and fees for necessary repairs or improvements, and almost any expenses directly related to a property flipping business. Then, just a few months later, it’s all able to be deducted from total taxable income.
So often we put off these big purchases because life, holidays and unexpected circumstances get in the way. However, the right timing and some careful accounting can make you a happy investor come April.
The best way to be prepared for tax time is to become a smart saver, and a financially intelligent investor. Be the kind of person that doesn’t wait until the last minute to get all their tax documents together!
It’s always tempting to put off learning about taxes until next year. Or, we form bad habits of making big investments right away whenever we have the assets to do so. However, success and growth should come first, and that means making taxes a priority.
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