How to avoid taxes with primary income from flipping properties?

[Clayton Coombs]

Hey guys, I've been a full time real estate agent for several years now and up until this year that has always been my primary income. However this year I focused more time flipping properties than selling real estate as a real estate agent. I will net approximately $250k from flips and $50k from real estate sales this year. I do own 3 rental properties (free and clear) however I just picked up 2 of those in the last 6 months... My concern is that I will probably have to pay $80-100k in taxes which never looks appealing. I did meet with my CPA but he wasn't much help. He told me that most people would love to be in my shoes with little debt and good income. Although I understand I am very fortunate that's not the advice I was looking for from my CPA. I am now looking for a new CPA and figured there are lots of professionals flipping properties on Bigger Pockets and felt this would be a great place to get some advice on strategies to lower taxes and find a good CPA & accountant. Taxes to me are like a foreign language... I do track all my expenses but the tax code makes no sense to me... Thanks in advance for any help!

[Ashish Acharya]

Originally posted by @Clayton Coombs:

Thank you Carl, I completely agree. 

I contribute about $18,000/ year towards my roth solo 401k and about the same about the same to my traditional sep IRA. I understand the traditional IRA gives me tax benefits now and the roth will give me benefits in the future. However I still have a lot of years left before I can start drawing from those accounts. I did recently make them self directed so I can use them with some real estate investments but ultimately those accounts are still a little low without getting a loan.

 You can do few things: 

1) Start to leverage more rentals so the you can offset rental loss againsts your income. You will have no limitations as you are a real estate professional. But a rentals that’s has more equity appreciation( In a nicer area), they will either break even Cashflow and will give you taxloss via depreciation. 

2) depending on your situation, start hiring your family member to shift income to Lower bracket or with no tax. . That way kids can fund their own education and even retirement accounts starting now rather than you funding their school/college via after tax money. 

3) you need to be contributing towards qualified profit sharing plans via your businesse. You can shelter more than 60k for you, and may be 60k for your spouse, if your entity is structured properly to make it happen.

4) hopefully you are running your flips via S -crop to save on self employment taxes. 

You need to talk to a good Professional.