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May 23, 2024 | read

162. Top Moves You Can Make Before Year – End To Reduce Your 2021 Taxes

Thomas Castelli

In this episode, Thomas discusses year-end tax strategies that will help you reduce your tax liability.

This episode is sponsored by Landlord Studio and Tax Smart Investors.

Full Transcript:
This podcast has been transcribed using AI, please excuse spelling, grammatical, and other errors.

Thomas Castelli 0:00
You’re now listening to the real estate CPA podcast. 

Brandon Hall 0:05
Your source for all things real estate, accounting and tax. Here we reveal our secrets that can save you 1000s in taxes, streamline your accounting process and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors and current clients on what strategies they use to grow their business, and how they steer clear of Uncle Sam.

Thomas Castelli 0:29
Hi, everyone. Thanks for tuning into this episode of The Real Estate CPA podcast your host today Thomas Castelli and in this episode, we’re gonna discuss your and tax strategies that can help you minimize your tax bills. We all know minimizing taxes is essential to grow your portfolio However, another important aspect of growing your portfolio is making sure you have the right accounting system in place. And while there are plenty of general business accounting software options out there, they’re not designed for landlords managing rental properties and feel clunky and overly complex. Landlord studio on the other hand, is designed specifically for Do It Yourself landlords, they offer a full suite of tools designed to help landlords save time with their income and expense tracking, as well as property management tasks like rent collection, rental listings, lease management and tenant screening. One thing I found particularly impressive was its ability to connect bank accounts to view and reconcile transactions from inside the software. And by using landlord studios mobile app, you can digitize your receipts and the software automatically lifts and imports the receipts details. Landlord studio is also a great way to stay tax compliant, particularly as they offering a number of different financial reports including Schedule E where rental properties reported on your form 1040 You can learn more about landlord studio by heading to WW dot landlord studio.com/cpa. Again, that’s landlord studio.com/cpa. We’ll drop that link in the show notes below. But for now, we’ll jump right into today’s episode. Alright, so the first year in tax Treasury we’re going to discuss is making a contribution to a qualified retirement account such as your company 401k. And the reason why you may consider doing this is because you can reduce your taxable income dollar for dollar for each dollar you contribute to the 401k. And as of 2020, the contribution limit is $19,500 on the employee side, which means you can reduce your taxable income by up to $19,500, which if you’re at the 24% federal tax bracket, you would save $4,680 Not too bad. Another thing you might want to consider is contributing to a health savings account. Now the good thing about a health savings account or an HSA is you don’t actually have to make the contributions in this tax year in 2021. You just have to open up the account and then you have until April 15th of 2022 to actually make the contributions. Now if you’re wondering what an HSA is, I’m going to give you a very brief overview. So if you have a high deductible health care plan, which is defined as having a minimum deductible of $1,400, if you’re single, or $2,800, if you are married, you’ll be eligible to open up one of these accounts. Now with you open one up, you can contribute up to $3,600 If you’re an individual, or up to $7,200 If you are married, and if you’re at the 24% tax bracket and you make that contribution and you’re married, you’re gonna be able to save $1,728 Not too bad now how you use his account as you can reimburse yourself for qualified medical expenses. Or if you don’t have any qualified medical expenses, you can invest that money for return on your investment. And then later on at some point in the future, I promise if you live long enough, you’re gonna have health related issues and you’re gonna have health related expenses, you can go ahead and reimburse yourself from this account.

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Thomas Castelli

So essentially, it is a triple tax advantaged account because you are putting the money in tax free, you can invest the money and it will grow tax free. And then when you take it out, it is tax free. So definitely an account you’re going to want to consider if you have a high deductible health care plan. Alright, next we have charitable contributions. If you itemize your deductions and make a donation to a qualified charity before the end of this year, you can receive $1 for dollar deduction up to 60% of your AGI for cash contributions. To give a quick example, if you’re the 24% tax bracket, and you make a $10,000 cash contribution you can save up to $2,400. Also, the contributions are not limited to just cash. You can also donate securities and property such as stocks, real estate and even cryptocurrency so I know what you’re thinking all you crypto investors out there who made massive crypto gains are trying to reduce your tax bills, you can actually donate your cryptocurrency to charity and receive a deduction. Alright, so now we’re gonna shift gears a little bit and dive into some business and real estate related strategies that you can use to minimize your taxes. And we’re going to kick it off with everyone’s favorite and that’s buying a business vehicle. So if you buy a vehicle that has a gross vehicle weight rating of over 6000 pounds, and use it more than 50% for business, you can generally deduct 100% of its business use Thanks to 100% bonus depreciation, for example, if you bought a Ford F 150 for $50,000 and use it 70%. For business prior to your end, you could receive a deduction of $35,000. And if you’re in the 24% federal tax bracket, that’s an $8,400 tax savings. Next, if you’re a business owner, you may want to consider deferring income until January 1. You can do this by waiting to send invoices and collection reminders until after your end and letting clients and customers know that you want to receive payment in January. Doing this will of course reduce your taxable income in 2021. Because you are deferring this income into 2022. going hand in hand with this strategy, you may also consider prepaying expenses such as software advertising, travel, material supplies, so you can reduce your taxable income this year. Similarly, if you’re a real estate investor, you may consider completing last minute repairs and maintenance to your rental properties prior to the end of the year. So you can take advantage of those expenses and reduce your taxable income before year end as well. All right, diving into the real estate side of things, you may consider investing in a syndicate before the end of this year. And that’s because many syndicators will use a cost segregation study to generate very large losses and then pass them through to their investors via the form k one. Now if you’re on the passive investor side of the spectrum, you can use these losses to offset rental income from other properties or gains from the sale of other properties you may have sold in 2021. I know for a fact that I am using this strategy this year, I invest into a syndicate to offset gains from the sale of a another syndicate that occurred within 2021. And we see clients use this all the time to offset gains on the sale of other syndicate interests they had throughout the year, or even properties that they have sold throughout the year themselves that they owned directly. Although there’s some investment risks there is definitely worth considering it can be quite lucrative. Now, if you’re a real estate professional own rental properties directly and spend more than 500 hours materially participating in your direct rental properties, you could actually invest in syndicates, and then group those interests in with your overall rental activities, and then use the losses generated by the syndicates to offset your active business income, or say w two income that a spouse may have generated. And that’s all we have for this episode of The Real Estate CPA podcast. And this of course, is not a comprehensive list of year end tax strategies. If you want to learn more about what strategies you can use at your end, go ahead and check out episode 64. The real estate CPA podcast as well as the recent article, Brennan wrote on tech smart investors calm to get access to Oracle, simply head on over to WW dot tech smart investors.com. And if you’re a basic or Plus plan member, you already have access if not go ahead and sign up for one of the free trials and you can get access to the article risk free. Last but not least, you’re going to want to go ahead and speak to your CPA or tax advisor prior to implementing any of the strategies mentioned on this podcast to ensure that they are appropriate for your situation. That said I want to wish everybody a happy holiday season and we’ll see you next year.

Brandon Hall 8:03
Thanks for listening to today’s show. If you enjoyed the show, please find us on iTunes and leave us a review. You can also email us at contact at the real estate CPA comm with any feedback or topic suggestions, we are always taking on new clients and with the new tax laws in play. You really don’t want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs. To become a client navigate to our client page at the real estate CPA calm and fill out a webform with as much detail about your situation as possible. Thanks so much for listening. Have a great rest of your week.

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The Real Estate CPA podcast is for general information purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Information on the podcast may not constitute the most up-to-date legal or other information. No reader, user, or listener of this podcast should act or refrain from acting on the basis of information on this podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Only your individual attorney and tax advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this podcast or any of the links or resources contained or mentioned within the podcast show and show notes do not create a relationship between the reader, user, or listener and podcast hosts, contributors, or guests.

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