The beginning of the year is the perfect moment to think about your tax strategy.
It’s the time to take all of the lessons you learned last year and put them to work for you.
We’re not tax experts … but we know someone who is. CPA Tom Wheelwright brings his knowledge and enthusiasm to our tax discussion.
Don’t be scared of your taxes. Use them to save you a TON of cash.
A disclaimer: on this show, we do not offer tax or legal advice. See your personal tax pro for that. We do, however, offer plenty of ideas and information, which you can ponder as you please!
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your tax-free host, Robert Helms
- His taxing co-host, Russell Gray
- CPA Tom Wheelwright
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Time to talk taxes
The beginning of a new year is a great time to think about your real estate strategy … but there’s something else to keep in mind. Taxes!
Most people don’t proactively think about managing their taxes. Throughout the year they live their lives, throw their receipts in a box, and eventually give that box to their tax preparer.
But there are things you can do and SHOULD do on your tax form that will make a big difference for your finances going forward.
It starts with figuring out what happened to you tax-wise last year and using those lessons learned to change behavior this year.
If you can change your tax mentality early in the year, you can maximize your financial behavior to get the most out of your taxes all year long.
Cracking the tax code
If you want great answers, you’ve got to ask great questions.
It’s only been a year since the implementation of the new tax code … so we have plenty of questions!
We’ve brought in an expert to help us figure everything out. CPA Tom Wheelwright LOVES taxes … seriously. He really does.
Most people can’t believe how excited Tom is about tax law. But once they have spent time with him and read his book, Tax Free Wealth, they’re thrilled with the amount of money they have saved.
The first thing Tom will tell you is that taxes aren’t something to be scared of. Taxes are a way to save you money!
Our friend Robert Kiyasoki says that if you look at the nation’s tax code, you can tell exactly what they want tax payers to do.
The good news is that real estate is one of the world’s favorite assets. No matter where you are located, there is a very good chance your government has set apart incentives for you as a real estate investor.
Your job is to figure out what those incentives are … and use them to your advantage.
Luckily for us, Tom is here to help get you started.
Last year is not over
Tom says the first thing you need realize is that last year isn’t over. Until you file your tax return, there are still many benefits you can take advantage of.
As you sit with your tax advisor to do your taxes for 2018, there are things you can do under the new tax law that could be the difference between a tax bill and a tax refund.
The big one is bonus depreciation. For the first time ever, investing in real estate can potentially give you a bigger write-off than investing in oil and gas.
We’ve never had bonus depreciation on used property before, and it has never really applied to real estate in general.
The key is cost segregation … the idea that you can treat different components of your property differently from a tax perspective.
When you buy a piece of property, you buy the land, the building, the landscaping, the parking structure, the outdoor lighting, the fencing … and all of those things are treated differently for tax purposes.
Even inside the building, you are buying everything from cabinetry to ceiling fans.
To cost segregate for bonus depreciation, your CPA and an engineer work together to break down all the components of your purchase.
You’ll find that between 20-30 percent of the cost of the property is eligible for bonus depreciation.
If you bought a property in 2018 and haven’t done a cost segregation … it’s not too late!
Tom recommends extending your tax filing deadline so you have until the fall to complete a thorough cost segregation. There is a cost involved … but the potential savings are enormous.
The good news doesn’t stop there.
Even though bonus depreciation only applies to property purchased in 2018, you can catch up on depreciation you should have taken on properties purchased several years ago.
You MUST do the cost segregation BEFORE you file your tax return … but you can take all of that missed depreciation on your 2018 taxes.
Plan for your 2019 taxes … now
It’s never too early to start planning for next year’s taxes. Every day you have an opportunity to raise or lower your tax rate.
As you sit with your tax advisor, talk about your plans for the year. Project what your taxes will look like in 2019 NOW … so you have the majority of the year to work toward smart tax benefits.
The de minimus rule for purchases is the perfect example.
This rule says that any line item you buy under $2,500 can be deducted. Think about what that means for real estate investors.
Anytime you buy water heaters for apartment units or window coverings or even carpet … all of these things are frequently under the deduction limit.
If you plan to take advantage of this benefit at the BEGINNING of 2019, you can track these purchases … and save the receipts … throughout the year, so you have everything you need when it’s time to file.
Your tax preparer is key to your success
If you’re going to be in the real estate business, it is best to find an accountant that truly understands real estate.
Tom is the first to say that even though he has always been a real estate tax professional … he understands his work so much better as an investor himself.
A tax advisor that can combine real estate book learning AND street learning will lead you to tax nirvana.
Your tax advisor has the biggest impact on your bottom line over anyone besides your spouse and your business partner.
If you follow the tax law, you will always make more money.
So, how do you find a great tax professional?
Find a tax advisor who works WITH the tax law, not against it.
Tom says to look for someone who knows tax law so well that they are never going to be concerned about an IRS audit. At the end of the day, it’s all a matter of understanding.
Taxes are not the enemy. Taxes can save you a ton of money.
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