As 2023 draws to a close, it’s the perfect time to get ahead of your taxes. Talk to a tax professional to understand where you stand and take final steps that could save you big bucks come tax season in the coming months. Before you run out of time and do something, make sure you know exactly what your options are.
We spoke to two real estate CPAs to find out what they advise their clients on and what’s important to them. do not have Do so in the last few weeks of the year.
timing is everything
amanda han He is a real estate certified public accountant and tax strategist. A book on tax strategies for smart real estate investors For big pockets.she invests all over the united states
Large pocket: What should investors do to prepare for taxes at the end of the year?
Here’s what investors should focus on as the year ends. [thinking about] timing of transactions. For example, if you’re nearing completion on a sale that will yield a large profit, consider deferring the proceeds to January 1 of next year. By delaying the closing of the transaction by even a few days, he can defer taxes for a year.
The opposite is true for expenses. If you need to make any expenses to offset this year’s income, consider prepaying some of those recurring items before the end of the year to speed up their amortization into this year.
Payments that are charged to your credit card before the end of the year may still qualify for a tax deduction.You may not need to complete your credit card payment [for it to count for tax year 2023].
Large pocket: What should investors avoid?
One thing investors should avoid is using money solely for the purpose of tax deductions. In other words, if it’s not something you need, don’t pay for it just because you get a tax benefit.
Communicate proactively with tax experts
Daniel Rutigliano is a certified public accountant and real estate investor based in Long Island, New York. She is the owner of a small CPA firm specializing in bookkeeping, tax planning, and tax preparation for real estate clients across the United States. As an investor, she has expanded her portfolio to just over 40 units in New York, Indiana, and Tennessee. 3 years.
Large pocket: What should investors do to prepare for taxes at the end of the year?
Investors should consult a certified public accountant specializing in real estate to discuss this by the end of the year. Last minute tax savings opportunities for 2023.
They should discuss frequent absences deduction, home office deductions, business use of mobile phones, gifts, etc. They should also discuss whether they qualify. Short-term rental loophole or Status as a real estate professional If the taxpayer has children, they should discuss with their CPA whether it is beneficial to pay child support expenses in December in order to obtain additional deductions before the end of the year.
Investors need to clean their books and avoid playing catch-up until the last moment. This can lead to missed deductions.
Investors who purchased real estate in 2023 should consult a CPA to see if they would benefit from a cost segregation study of their property. That way, you can take advantage of bonus depreciation to maximize your rental losses.
If you are a cash-based taxpayer, investors should consider prepaying expenses and services in 2023 to maximize your deductions. This could be insurance, property taxes, or other real estate-related expenses.
Investors actively engaged in real estate business real estate agent, fix and flip investorand wholesaleryou should check with your CPA to see if you can benefit from paying a reasonable salary in December to reduce your self-employment taxes.
Large pocket: What should investors avoid?
- We are waiting until the last moment to complete our 2023 books.
- Working with tax professionals who don’t understand the tax laws of their real estate clients.
- mix together Business and personal expenses.
- Putting Rentals into S-Corps
- Investors should try to avoid selling real estate for a profit before the end of the year. You should try to delay closing until 2024 so that you have a full year to plan to minimize the tax impact of the sale proceeds.
Large pocket: What strategies would you like to see more people use?
- Being a real estate professional is a very powerful strategy for tax savings, so I hope more investors take advantage of it.
- Proper entity structure is important and can save taxpayers significant costs. Placing real estate in the wrong entity is a very costly mistake, and incorrectly setting up your rental portfolio structure can result in excessive tax preparation costs.
- Bonus depreciation is also a very powerful tool. I wish more investors would work with their CPAs to see if they could benefit from doing a cost segregation study.
Are you dreading tax season?
Not sure how to maximize your deductions for your real estate business? A book on tax strategies for smart real estate investorsCPAs Amanda Hung and Matthew McFarland share the practical information you need to not only file your taxes this year, but prepare an ongoing strategy to make next tax season easier. Masu.
Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.
