March 2014

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Everyone’s K1 and 1099 statements should be in so that real estate investors can do their income taxes.  If you are a property manager, this should be done by now or you are long overdue and sitting on the wrong side of the IRS, which is never a pretty situation.  It’s only 45 more days before income taxes are due on April 15th.  Take your deductions and put them to good use.  This is the part where a real estate investor can lose over half of his income from flip sells and rental income if you are not aware of all the tax deductions you can take.  There’s plenty of them (50pages at last count) and they are all legal too.

Just be sure that your accountant is familiar with real estate deductions for all levels of investors (individual to sole proprietor to C-corp).  If not, then you need to find one that is or actually owns properties themselves to understand what you a real estate investor does.

There is such a problem as “taking too many tax deductions” even though it is legal. How? Or why should you care?  For example, many can show a lot of losses to make up for not paying hardly any taxes in year after year after year.  But it can go against you should and when you decide to purchase another real estate investment.  Most banks, when asking for financing, look at your prior taxes to see how well you are doing with your prior income.  Many loan officers will not understand all the deductions and the reasoning behind it.  However, you want to take enough deductions to save yourself on the tax bill (which eats up almost 3/4 of your yearly income) but you want to leave enough taxable income to show that you are ‘growing’ or ‘gaining profits’ in your investment business.  This way you will be able to still progressively invest in real estate using other people’s money, especially bank money.

So, keep this in mind while having your taxes done.  Remember to mind your business.  And last, be sure to take the time out to decide how to structure yourself for the next year.  For example, are you getting too big for being a sole proprietor?  Do you need to down-size? etc, etc.  Then, structure yourself accordingly.  Listen to your lawyer or your account if you have no idea on what to do.  This is where it is important that you build your team for your business.

Cristi and Johnny