I knew that title would get your attention. However, be clear this post will NOT explain how to pull a fast one on the Internal Revenue Service. Our goal is to show you how we will utilize IRS to help you lower your taxes and lower your chance of an audit nightmare.
Yes it is true the letters IRS often are synonymous with fear, anger and disgust, but we are going to “flip the script” Here are three of the most important things you can and should do to put a great strategic tax savings plan into place.
I- Incorporate – I can not stress this enough, if you are self employed and you are in the real estate business to make money, you are running a business. Without a proper business structure you are leaving yourself open to extra liability and the probability for significantly higher taxes. In Florida as a licensed professional you can become a PA (professional association) and your broker can pay your PA directly. There are many advantages on becoming a PA, but for accounting and tax purposes the two biggest are again: LOWER TAXES & SIGNIFICANTLY REDUCED CHANCE OF AUDIT. Operating your real estate business as a PA provides you with greater flexibility, as now you are not only a business owner, but you will also become a w-2 employee of the PA you own! Ok, this may sound complex and a bit overwhelming but I promise you its not. Even better, once you get started, you will quickly learn and understand just how much flexibility and tax savings potential you have.
R- Record keeping – This is the one that many people overlook and I must say this is the most important when it comes to maximizing deductions and audit defense. Without good records your accounting will be a nightmare. Even worse in the event of an audit, without being able to prove your expenses, the IRS will disallow your valuable deductions. I often tell my clients to keep records of EVERYTHING, and better yet keep a monthly log of all expenses, this will not only allow for a quick financial snapshot to see your current Profit & Loss, but will also give you a very good idea of what your tax liability will be.
All of my clients will be provided with a personal secure cloud based folder where they can easily upload all receipts and expense logs. This allows me to track their P&L and give them a monthly snapshot of how much in taxes they will owe.
S- Salary- As you recall from the Incorporation section of this post, once you structure your business as a PA (professional corporation) you will not only be the owner of the corporation you will also be an employee of the company. This is EXTREMELY important. What this basically means is that you need to take a salary. To determine a salary I generally discuss many variables with my client which include: the amount of time they dedicate to working, their gross revenue and expenses. Taking a salary provides you with an unbelievable amount of flexibility. Most Realtors who are self employed and are not structured as a PA, will pay significantly more in taxes and one of the main reasons is, they DO NOT have a salary. The tax savings hear can be immense! The main reason is due to decreased Self Employment tax.
This is a detailed subject and if you are interested in learning more I am happy to do so face to face or over the phone.
In summation, if you use I-R-S as shown above you will be on your way to lower taxes and more security. Please feel free to contact David Byck at 561-350-9278 or via e-mail at dave @floridataxguy.com to set up an appointment or simply learn more.