Need some BIGGG Tax Breaks

[Thomas Talbert]

I am a Real Estate Professional who bought a Property Management Business a little over 2 years ago. Within that time frame the business's revenue has grown significantly and has outran my tax write-offs from buying the company. My tax bill was sizable this year but 2024 is going to be a doozy. As a Real Estate Professional, I know I have some friendly Tax Laws that can help me but I am unsure where to look. Does anybody have any ideas?

[Kory Reynolds]

1) Consider qualified accounts - HSA and Retirement.  Low hanging fruit.  If your PM doesn't already have a retirement plan, there are credits right now against the costs of setting one up and training.  Bonus...you may be able to structure a 401(k) plan that provides a higher match for certain classes of employees.  Contributions to a 401(k) top out at a whopping $69k for 2024.

2) If you would be materially participating in the Rental Operations of a rental property, consider acquiring rental properties and performing cost segregation.  All a timing benefit, but does provide some short term relief to free up capital to continue to invest.  Or consider short term rentals - still requires material participation, but may be easier to hit the material participation thresholds if you self-manage.  In the end this cost segregation approach is only a Timing difference - you pay less tax now, you pay more tax later.

3) Consider if an S-Corporation makes sense.  IE, is there already enough W-2 wages without paying yourself a W-2 wages to support your entire available 199A deduction?  If not, it is worth exploring an S-Corp, which would partially shield you from some self employment taxes while also providing a greater base of wages to take a 199A deduction. 199A might go away in 2026, so maybe don't make any radical moves just for the next 2 years unless the tax savings will be substantial.  Whatever you do...don't buy rental properties within this S-Corporation.

4) Are the states you are operating in have an available PTE? In which case, take advantage of those, or restructure so you re able to.

5) Consider charitable giving, if that is a part of your goals

6) Consider what equipment and other purchases your business actually needs and purchase those to continue growing the business.  Don't buy stuff you don't need just to lower your tax burden.

7) Don't worry about it too much - accept the fact that in order to have a big tax bill...it means you (typically) had to make a bunch of money.  Make the small tweaks as you need to so you aren't unnecessarily paying too much, but I wouldn't radically change your business or where you are spending your attention just due to taxes. If you can make more money by focusing on building your Property Management business than if you spent the same hours in a rental property...spend the time where you are going to make more money, even if it does mean a higher tax bill.

8) Go talk to someone who can spend the time getting to know what is going on with you and provide some customized advice.  Everything above is relatively boilerplate advice.