Entrepreneurs are always looking for the best way to manage their money. In particular real estate investors always have to review not only how they spend their money, but the best way to track it in order to prepare annually for their taxes to be done.
This series is meant to provide tips and strategies which can help fine tune the process.
The number one thing most small business owners look at when it comes to their taxes is what can be done to reduce their tax liability. For real estate investors, there are multiple strategies available, that can reduce tax liability.
For investors with 15 properties or less, you are likely managing the properties yourself. If that is the case, we will start with the basics.
· Track your mileage: Whether it is from your home or office to the properties and back, or to the local home improvement store for materials, those miles can be written off. Whether you log this manually or with an app, it is important to track your business mileage daily. You will also want to notate your mileage at the start of the year and your year ending mileage.
· Office Expenses: This would include items such as office supplies, including a receipt book for the tenants who pay in cash or money order.
· Cell phone usage: specifically track the calls for your real estate business. The percentage that is used for business can be written off.
· Home Office Expenses: expenses that are used to support your home office can be written off such as utilities, internet usage, home insurance and your mortgage/rent. You can write off a percentage of these expenses by calculating the percentage that is actually used for your business. To determine the percentage you would measure the space that you are using as your office and divide that number by the total square footage of your home to get the percentage. For example let’s say your office space is 300 square feet and your home is 2000 square feet you will be able to write off 15% of your household expenses that contribute to the running of your home office.
· Depreciation: One of the best write offs you can take as a real estate investor is depreciation. There are many ways to use depreciation as a tax strategy. Ask a tax professional about what the best strategy would be for you.
Finally the tax code defines business deductions as what is ordinary and necessary for the operating of your business. You define what is ordinary and necessary in order to operate your business in excellence. A tax professional can help you navigate through creativity surrounding what is ordinary and necessary.
Contact us at DNA Financial Services at 248-805-2218, e-mail us at info@debtnotallowed.com or message us through the DebtNotAllowed.com website for any questions concerning our tax, bookkeeping or business coaching services.
Founded in 2015, DNA Financial Services LLC has pledged to Educate, Empower and Equip the financial DNA of its’ clients now and for generations to come. The company offers a number of financial services including tax preparation, bookkeeping, personal and business financial coaching. These services have been designed to bridge the gap in wealth building and functional money management, while promoting financial literacy for people from every walk of life.