Tax strategies when you start making a bit more...

[Brian H.]

Howdy everyone. Hope you are all doing great!

So, this year, I will make around $140k on paper.  I make right over $70k at my day job (with... no benefits, yes I know, moot point) and my rentals will pull in right around that much as well. I take no pay from my rental business yet. Just putting everything back into it to pay for some repairs/upgrades and also build capital back up so I can invest more.

I don't have a 401k through work... so I can still contribute to Traditional IRA for this year, correct? And still get deductions because of no 401k? The owner of the restaurants I manage is considering starting a 401k in 2020. So at that point, if he does, I won't be able to get a deduction from Traditional IRA, making it not a tax advantaged retirement account for me to contribute to anymore. What is the best move at that point? Do I go with ROTH? Do I just start investing in index funds and what not, just not utilizing retirement accounts for that piece? I will, of course, max out my 401k if I can and hope to have a little left after for extra investments. Just curious what makes the most sense at this point. We are finally able to start really putting money away and I want to make sure we do it in the way that will help us the most as we move forward.

Thank you all so much!

[Natalie Kolodij]

Agreed- this requires actual tax planning based on all your facts and circumstances- I'd find a tax pro who specializes in REI.

Worth noting- you said you rentals make about $70k but you're not paying yourself from them putting it back into them, ect 

Whether you take money out doesn't impact your taxable income- you're taxed on how much the net profit/loss of the rentals geneates- whether you take that profit or leave it in the bank. 

Also- a lot of rentals generate losses on paper, and if you're putting money back in for repairs regularly there's a good chance some of those need to be capitalized as well. 

I guess in short- if you're not already working with a REI savvy tax pro there's a chance things aren't correct, aren't being done as advantageously as possible, and you won't be in a the best place tax wise.