Tax Saving Tips for the Real Estate Investor

In addition to simply forming a business entity, there are some other useful vehicles for saving on taxes. This is not a discussion of business write-offs, but rather of techniques or tools for keeping more of your revenue. Examples include:

• 1031 tax exchanges
• Use of living trusts
• Dividend paying whole life insurance
• Retirement accounts
• Self Directed IRA

In the case of exchanges and trusts, these tools allow for transfers or upgrades of assets without being subject to substantial capital gains taxes. Sure, there are rules and regulations for how to do this properly, but again that is a better question for an accountant or estate attorney.

In the case of whole life insurance or retirement accounts, these tools allow you to use capital housed in them to invest in real estate or other commodities. The return that is paid back to them can be structured to where it is tax deferred or, in some cases, even tax-free. Be sure to ask your team members about these kinds of tools for your business and also keep your eyes peeled at your local REIA meetings because these also are common discussion topics.

Winning the game of business and tax savings is not about beating or outsmarting the IRS. This is old school thinking. If you have to write a big ugly check to Uncle Sam then this means that you had a decent year. Go make more money and hope that you'll have to write a bigger check next year.

Key Point: Remember, your duty, as a business owner and real estate investor is to focus on revenue, not cost control.

Many of us have the mindset that sticking it to the ‘tax man' is good, which implies an adversarial relationship with the government's tax system. That just isn't the case when it comes to running a business. Without a doubt, the best way to minimize your taxes is to be a business owner. Companies are taxed at a lower bracket than individual earners and, to boot, are taxed on net income, not gross income like everyone else. That itself is a huge plus for bringing more organization to your business.

When it comes to how you are viewed in the eyes of the IRS, the exact stats are staggering. Corporations and LLCs that claim certain business deductions are some 7-10 times less likely to be audited than a sole proprietor who makes the same deduction claims. Why? A corporation is a business that usually has its own tax identity and thus is less likely to throw up red flags to auditors. Individuals have every right to run their own businesses without the use of an entity, but they also must be more cautious when it comes to deducting expenses. The IRS simply keeps a closer eye on sole proprietorships, due to past and present abuse of the business deductions that are allowed. Whatever you do, keep good financial records and you'll have little to worry about.

In summary, when the government makes it clear that incorporating or registering an LLC is a proven way to reduce your risk of tax audits, why not go with it? These entities can also be better ways to protect assets, and once you have assets worth protecting, you can and should want to do everything you can to get the job done.

So, continue investing in your education as a real estate investor, too. There are many opportunities out there, be selective and choose proven avenues that will help you use the information and actually make money using it. I encourage you to check out the tools I can provide, it's the same material I use everyday in my own business.
Go to www.freemakemoneygift.com/Invitation.html


To your real estate investing success,

Brian Evans