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We receive hundreds of inquiries about our tax preparation and tax planning services. Some investors group these services together, and some understand there is a difference between the two. Today, Brandon and Thomas discuss getting a tax plan in place.
Why Tax Planning?
"Tax is often your largest expense. If you're in the highest tax bracket, you could be paying upwards of 40%-50% in taxes, depending on where you live."
This involves looking at current tax position, identifying opportunities that were missed in the past, determining if we can recover from missed opportunities, and a plan on how to implement strategies that align with goals.
"Don't let the tax tail wag the dog. You shouldn't really make decisions based purely on tax savings, you should make decisions based on wealth building, and you should have tax strategies that align with your goals."
Many real estate investors have missed tax savings in the past.
Once the year ends on 12/31, there's very little that can be done. There are no more opportunities to change the facts of your activities from the previous year. That year is shut and in the books. A tax plan projects forward to ensure the investor is conducting business in a tax-advantaged manner.
What Does Tax Planning Look Like?
Tax planning is when you sit down with an advisor to sit down and identify where you are today, what your goals are, and the strategies that will be relevant to minimize your tax.
Method 1 - 1:1 Planning
Customized, deep-dive into strategies that are specific to the individual. First, an advisor will get clear on your current situation by reviewing your prior year tax returns before the call and ask clarifying questions. It's necessary to have a full understanding of your current situation and an understanding of your goals, what you want to do in the future.
"The whole point of tax planning is to educate the taxpayer about the options available to reduce your tax bill."
Tax planning is very educational, it's designed to be a learning experience. This involves:
- The tax strategy
- The benefits of using that tax strategy
- How it applies to your specific situation
- The actions to take throughout the year to ensure execution
- What needs to be provided to your CPA to ensure the activity is properly captured
Timing is key on many of these strategies.
Method 2 - Tax-Smart Course
Many individuals come to us for help, but our personalized tax planning engagements are too expensive for their size. If you can't afford tax planning or we can't serve you because we don't have the capacity, we've made available an option to everyone to learn about taxes.
This is a 5-week course with 2-3 hours of prerecorded video per week from Brandon, weekly live Q&A with Brandon, and a course community group where tax and accounting questions can be asked and answered by Brandon and other members here at The Real Estate CPA in a forum setting.
This is higher-level education, not customized to the individual. Topics on the agenda include:
- Basic tax deductions
- Real Estate Professional Status
- Short term rentals
- Investing through a retirement account
- Paying your children
- 2017 Tax Cuts and Jobs Act
- CARES Act
We're been doing the course since halfway through 2020. Individuals that have come up through our course are our most educated current clients. If you're newer to the game, maybe with a smaller portfolio, looking to understand the tax landscape, the course is certainly for you.