Navigating the real estate market requires more than just smart buying and selling. For those looking to flip properties, understanding tax strategies can make a big difference in profits. The accountants at Accolade Accounting bring deep insights into how taxes impact your investments.
Understanding taxes is key when it comes to flipping property. Profits from selling properties quickly can face high tax rates. This is typically a result of profits falling under short-term capital gains.
These are taxed like regular income in the US. So, if you’re in a higher tax bracket, taxes could significantly reduce your profits. To manage this, smart planning and timing matter a lot when buying and selling flips to potentially lower these taxes. Accountants for real estate investors often advise keeping track of all expenses related to renovation work. These expenses can reduce taxable income.
It’s important to consider how long you hold onto a property before selling it. Holding longer may qualify for lower long-term capital gains rates, reducing the final tax bill compared to quick sales, which are subject to higher taxation.
When you’re flipping houses, the kind of business entity you chose to setup you use can make a big difference in your taxes. If it’s just you doing flips, an LLC could be smart. This choice helps if things go wrong by keeping personal assets safe and separate from business losses.But when tax time comes around, profits from selling flipped homes get taxed like regular income for most people.
Forming an S Corp might be better for those working with others or aiming to grow their flipping into something bigger. Payments to yourself as salary from the S Corp are subject to payroll taxes; however, additional profit may face lower taxes than regular income does.
Using money within retirement accounts like a 401(k) or Roth IRA for real estate investments is doable under certain conditions. However, it needs careful planning due to complex IRS rules and their impact on your account’s tax benefits.
Paying family members through a disregarded entity is another strategy small business owners often consider as part of managing overall taxation impact efficiently while benefiting both parties involved financially and in terms of valuable work experience gained. But before making any of these decision you will want to speak with and accounting firm that specializes in real estate investment like Accolade Accounting.
Avoiding Common Tax Pitfalls for Flippers
Real estate flippers often face unexpected tax hits. One big mistake isn’t planning for self-employment (SE) taxes, which are hefty at 15.3% on the first chunk of earnings each year. Since flipping counts as an active business, these taxes apply directly to you.
A smart way out? Use an S-Corp or LLC taxed like one. This lets you split your income into two types: salary and distributions.
Only the money attributable to salary gets hit with SE tax; distributions do not. Picking a low yet reasonable salary can lower what you owe in SE tax significantly, leaving more profit in your pocket from flips. Also watch out when thinking about a 1031 exchange – swapping properties to delay paying capital gains tax sounds good but has limits if seen by IRS as resale activity instead of investment holding intentions.
Real Estate Investment Strategy Shift
In real estate investment, a key move to lower your tax bill lies in understanding bonus depreciation and cost segregation. These aren’t complex but can cut taxes for nearly all investors. To start saving, learn about 2022’s shrinking tax deductions quickly.
It’s vital to use these benefits now while they last! Partner with a skilled CPA who knows what write-offs you might not see yet could slash your taxes big time. With savings in hand, more money is free for buying properties.
Smart CPAs like those at Accolade Accounting guide you through this process smoothly. They show how expenses against income on paper can zero out profits leaving an untouched balance sheet that grows healthier by deal after deal increasing both net worth and flow of cash without boosting taxable income substantially. Picking up such strategies propels smart investing forward, allowing re-investments into new opportunities.
This expands one’s portfolio wisely under expert advice from qualified accountants specialized in real estate, ensuring significant growth within legal boundaries.
Selecting the Right Real Estate CPA
When choosing the right real estate CPA, one must look for expertise and experience. A good CPA knows tax codes well. They focus on how these rules apply to real estate deals.
This knowledge can save you much money. Find someone who talks about saving strategies easily. If they struggle to explain or seem unsure, keep looking.
Your ideal choice should have hands-on experience with clients similar to you in size and scope. Also, check if they’re up-to-date with current laws affecting property investors specifically since this changes often. Ask other property owners for recommendations too.
In short, pick a CPA who understands your business’s unique needs inside out and can guide you towards making smart financial moves while staying compliant with tax regulations.
Smart real estate investment calls for savvy tax strategies. Accolade Accounting, with deep experience in both realms, guides investors on this path. As a former IRS agent and an expert in real estate, our approach is practical yet innovative.
We help you navigate complex laws to optimize deductions and credits linked to property flips. To boost your profit while staying compliant with tax regulations.
For individual and business clients alike, particularly small business owners looking into real estate investments, tapping into specialized CPA advice makes every flip smarter financially.
Whether you’re searching for a “real estate accountant near me” or need advice on maximizing returns, my expertise helps individuals and small business owners invest smarter by leveraging effective tax planning tailored specifically for real investors like you.
When it comes to reliable accounting services in Atlanta, GA, look no further than Accolade Accounting. With a highly experienced accountant team, we have assisted numerous businesses in developing and implementing effective accounting systems. If you need expert guidance, don’t hesitate to contact our certified public accountants, call 470-646-2663
