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Updated over 7 years ago,

User Stats

55
Posts
5
Votes
Kin Lay
  • San Leandro, CA
5
Votes |
55
Posts

Game: Lower taxable income through real estate investing?

Kin Lay
  • San Leandro, CA
Posted

Hi everyone, I am interested in tax planning strategy to lower my W2 tax liability and create investment opportunity through the use of creative tax strategy. Can someone offer me some suggestions?

We can work with the facts about person A:

- W2 before tax income of 70K

- Less than 1 year full time work experience

- International travel at least once a year ($2500/yr - airfare, hotel, 50% meal & entertainment cost); assume person A will do land and cultural exploration, spend at least 4 hours a day during travel to speak with real estate agent, visit potential investment building and collect their business cards

- Utility expense of $115 ($45/mo cell phone, $40/mo internet, $30/mo electricity.

- Rent ($500/mo)

- single with no kid

- person A is interested in doing a coding bootcamp ($5500 cost) and find a part time web development job in the future; knowledge from coding bootcamp can also help person A to gain knowledge with automation in his current W2 job

- Does not own any business, but sometimes would talk about side business or investing opportunities over dinner table with friends and family (average cost for those dinners per month $300)

- Share a name with his mom on a residential property while paying $9000 property tax per year.

Here are some opportunities for person A:

- 18,000 contribution to 401K

- 5,500 Roth IRA or SD Roth IRA

- maximum 25,000 rental real estate loss

- purchase rental real estate with mortgage and take depreciation and property tax and other fees for rental real estate investment.

- tax lien investment

- open a LLC

- Real estate opportunity in Bangkok or Manila (USD$50,000 for apartment, 0.5% rent to price ratio); foreigner can only own condo, not land

- Real estate opportunity in Malaysia (USD$80,000, 0.5% rent to price ratio); foreigner can own land

- Real estate investing opportunity in Brazil, Greece, or etc.

- purchase land through tax sales, find construction company to build and rehab houses.

Here is an example of basic tax liability for person A if he does not participate in creative investment activities using 2016 tax rate:

Salary                                                         70,000

401K contribution                                     (18,000)

Roth IRA -

Property tax for Primary Property               (9,000)

Bootcamp as miscellaneous deduction      (5,500)

Taxable Income                                          37,500

Tax Liability (932.5+15% over 932.5)       6,417.63

How would you add or modify this sample strategy to help person A to lower his tax liability and turn it into investment fund? Please feel free to use fake numbers as sample for calculation.

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