All Forum Posts by: Luisito Espanola

@Luisito Espanola

If you are self-employed with no employees, look into opening a solo 401k as it will allow you to reduce your taxable income by as much as $53,000 or $59,000 if you are age 50 or older. These are year 2015 contribution numbers which generally increase each year based on cost of living index.

http://www.irs.gov/Retirement-Plans/One-Participan...

Depreciation is best deduction.  When I started buying real estate the last thing on my mind was tax deductions.  Creating income was priority #1.  Paying taxes shows you made a profit, and show the banks you can borrow $$$$.

Frank

I never recommend making a decision based on the tax deductions. If you are in the 30% tax bracket then for every $1,000 of deductible expenses, you will be able to write off $300 on your taxes. BUT you have still spent $700 out-of-pocket to "save" $300. 

I agree with @Rob Beland, choose real estate that earns you the most money after expenses. Then consult with a CPA to determine how to maximize your deductions and shelter your investments. 

A couple of things to consider with tax deductions:

1) The expense you avoid is worth far more than the tax deduction on that expense.  Don't accumulate needless expenses just for the deduction.

2) The income you earn will still net out to money in your pocket even after paying the tax. Don't leave income on the table just because you will be taxed on it.

3) Most real estate expenses are deductible in the year you pay them, especially if the benefit is immediate (like a utility payment or property tax).

4) Some expenses are prorated through the life of the improvement, such as depreciable buildings and roof repairs. This is also known as a capital expenditure (although land is not expensed). Even though you will be out of pocket up front for the expense, it will take years to get all of the tax deduction.

5) Choosing your tax strategies with legal entities and exchanges will change the timing of your tax bill and the tax rate at which you pay. Most have tradeoffs in terms of benefits and complexity.

So these are five rules that I used to advise my clients when I was in practice a long time ago. If you keep track of every expense, a tax professional can go over what is usable or not, and how to best put them to use.

Scott

It all depends Lusito. a deduction is a deduction regardless of the entity you use, but there are arguments for a C corp or a flow through (S corp or LLC). We use all flow throughs (one S corp we converted from a C and and LLC). The reason being it was easier to manage quarterly tax payments and we are still afforded the ability to defer income via a 401K plan we have within the companies. I would suggest if you are in the 39.6% tax bracket you could consider a C Corp at the lower tax bracket but I don't want to deal with that as I can still defer 25% of wages we pay ourselves up to $50K a year into the 401K plan we have and use that as a tax deferred vehicle to invest in additional property. When you start though, the first thing you have to do is generate income. Then worry about deductions. I would not have any entity until I had some cash coming in. Good Luck!

@Luisito Espanolayou take a tax deduction when you spend money in or on your business. The way to make the most money is to do real estate deals that make you a lot of money without having to spend a lot of money. More tax deductions does not equal more earned income.