How the Wealthy Pay Less in Taxes (Legally) with Amanda Han

How the Wealthy Pay Less in Taxes (Legally)

Taxes might not be the most exciting topic, but what if I told you they could be the easiest money you’ll ever make—just by keeping more of what you already earn? In this blog, we dive into how real estate investing can significantly reduce your tax burden and accelerate your path to financial freedom. With insights from Amanda Han, a CPA and tax strategist, let’s explore actionable strategies that can help you legally pay less in taxes while building long-term wealth.

The Importance of Tax Planning

Tax planning is an ongoing process, not just a one-time event. Many people think of taxes as something that just happens to them, but with a solid strategy, you can take control. Engaging in tax planning means looking ahead and making smart financial moves throughout the year. It’s essential to have this strategy in place long before tax season arrives.

  • Understand Your Income: Knowing your income sources—whether from a W-2 job, business, or investments—is crucial.
  • Set Financial Goals: Determine what you want to achieve financially, and align your tax strategies accordingly.

Debunking Common Myths

Many myths circulate about taxes and real estate. One significant misconception is that real estate investing offers no tax benefits to high-income earners. This couldn’t be further from the truth. Even if losses from real estate investments can’t offset W-2 income now, they can carry forward to offset future gains, providing long-term benefits.

Another critical myth is that tax planning is too complicated or boring. In reality, it’s about having a conversation with your tax advisor. You don’t need to be a math whiz or a tax law expert. Instead, focus on communicating your past actions and future goals to your CPA, who can then devise strategies tailored to your situation.

Understanding Depreciation

Depreciation is a game-changer for real estate investors. It allows you to claim deductions even if your property is increasing in value. The IRS permits you to take a paper write-off on the purchase price of a rental building over time, regardless of whether the property’s value appreciates or depreciates. This is one of the significant advantages of real estate investing.

  • Claims on Cash Flow: You can generate cash flow while minimizing taxes through depreciation.
  • Offsetting Gains: Even if you sell a property for a profit, tax benefits can help offset capital gains.

Real Estate Professional Status

For those who qualify, the “real estate professional” status can dramatically lower your tax bill. If you or your spouse can claim this status, you can use rental losses to offset taxes from other income sources. This is particularly beneficial for high-income earners looking to maximize their tax savings.

Key Questions for Your CPA

When working with your CPA, asking the right questions can unlock significant tax benefits. Here are a few to consider:

  • What are my current investment strategies? Understanding how your investments are structured can lead to better tax outcomes.
  • How can I optimize my tax situation? Your CPA should help you identify opportunities for savings based on your specific circumstances.
  • What should I be doing differently? Continuous improvement in your tax strategy can lead to greater savings.

Recognizing a Good CPA

Not all CPAs understand the intricacies of real estate investing. Many focus solely on W-2 income and overlook the significant tax advantages available to investors. A great tax advisor will engage in a dialogue with you about your financial situation, investments, and goals. If your CPA isn’t asking in-depth questions or providing tailored advice, it may be time to seek a new advisor.

The Power of a Great Tax Team

Leveraging a great tax team can be a game-changer for your real estate success. A team that understands the nuances of tax law and real estate investing can help you identify opportunities you might have missed on your own. This collaboration can save you money and time, allowing you to focus on growing your investments.

How to Get Started with Real Estate Investing

If you’re new to investing, it’s essential to start with a solid foundation. Here are some strategies to consider:

1. Buy and Hold

The buy-and-hold strategy involves purchasing a property and retaining it for an extended period. This allows you to benefit from both rental income and property appreciation over time.

2. House Hacking

House hacking is a strategy where you buy a multifamily property, live in one unit, and rent out the others. This can help cover your mortgage and other expenses, making it an attractive option for beginners.

3. Real Estate Investment Trusts (REITs)

For those who want exposure to real estate without managing properties, REITs can be a viable option. These are companies that own or finance income-generating real estate, allowing you to earn dividends without direct ownership.

4. Fix and Flip

This involves purchasing distressed properties, renovating them, and selling them for a profit. While it can be lucrative, it requires significant time and expertise.

5. Real Estate Syndication

Real estate syndications allow you to pool funds with other investors to purchase larger properties. This strategy can provide access to high-quality investments that may be out of reach individually.

Ongoing Tax Planning

Tax planning is not a one-and-done task; it’s an ongoing process. Regular check-ins with your CPA can help you adapt to changes in tax laws and your personal financial situation. This proactive approach ensures you’re always on track to maximize your tax savings.

Real Impact

In conclusion, understanding how to leverage tax strategies through real estate investing can significantly impact your financial situation. By engaging in continuous tax planning, debunking common myths, and working with knowledgeable professionals, you can legally reduce your tax burden and build lasting wealth. Remember, the easiest money you can make is by keeping more of what you already earn through smart tax planning.

For more insights and daily tax tips, follow Amanda Han on Instagram and check out her firm, Keystone CPA, at keystonecpa.com.