How To Pay Less To The IRS | Real Estate Investing

Blog BiggerPockets Real Estate PodcastBiggerPockets Podcast 162: How to Pay Less to the IRS with Amanda Han, CPA

No one likes paying taxes, so let’s talk about how you can pay FAR less to the IRS! On today’s show, we sit down with real estate investor and CPA Amanda Han, the author of the brand new book The Book on Tax Strategies for the Savvy Real Estate Investors. In this powerful (and fun!) interview, you’ll learn about the biggest tax mistakes investors make when setting up — and running — their real estate business. This interview could literally save you thousands of dollars! Dig in!

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In This Episode We Cover:

The new book that will help you save money
Who Amanda Han is and how she became CPA to an investor
Why the Tax Code is a language on its own
The importance of working with a CPA in regard to the Tax Code
The big list of people who screw up their taxes
Getting the right legal entity on the first deal
The two things to ask your CPA
Legitimate tax deductions you should know
Getting deductions from equipment
What you should know about the home office deduction
Other neglected deductions
A discussion on income shifting
Why you need to make sure you keep receipts
How to figure out if an activity is deductible through a CPA
Important retirement strategies
What you should know about self-directed investing
The basics of a 401(k)
The tax deferred and leverage concepts all rolled into one
Tips for getting benefits from depreciation
Entities and mistakes people make with them
How having corporations save on tax
Why you need proactive planning
And SO much more!

Links from the Show

Books Mentioned in this Show

The Book on Tax Strategies for the Savvy Real Estate Investor by Amanda Han and Matthew MacFarland
Rich Dad Poor Dad by Robert Kiyosaki
The 4-Hour Workweek by Timothy Ferriss

Tweetable Topics:

“Within the Tax Code, there are a lot of loopholes.” (Tweet This!)
“As long as you can show that it is necessary for your business, it should be a tax reduction.” (Tweet This!)
"Depreciation is not a choice." (Tweet This!)

Connect with Amanda

http://traffic.libsyn.com/bpradio/bpp-162.mp3

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By BiggerPockets Real Estate Podcast

Real strategies that work for real people seeking to build wealth through real estate investments. Co-hosted by Brandon Turner and David Greene, this podcast provides actionable advice from investors and other real estate professionals, who chat about failures, successes, motivations, and lessons learned.

104 Replies

Brandon Hall CPA from Raleigh, NC

Replied about 5 years ago

Nice work everyone!

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

thank you Brandon!

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

Great show Amanda and BP team!

David Krulac from Mechanicsburg, Pennsylvania

Replied about 5 years ago

Amanda was Excellent as always. To clarify, Solo 401K is only available if you have NO employees, and it has to be active income, not passive rental income. In addition there is a Roth component of a Solo 401K which means that the funds are tax free, as opposed to tax deferred as in a non-Roth 401K and a non-Roth IRA. I’ve done investing in retirement entities for land, houses and mortgages, its a wonderful feature of the IRC, and I’d encourage everyone to use IRAs, 401K and other retirement vehicles as much as possible. There has been talk inside the beltway of eliminating the Roth components of both IRAs and 401K, so the time to start Roths is NOW!

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thank you for the additional info David. Glad to have you share your knowledge as well.

Nate T. Investor from Tempe, Arizona

Replied almost 5 years ago

Thanks for the great info! I’m curious about this “no employees” stipulation. What if you set up a Solo 401K but then later you need to hire employees for the business? (In fact I believe Brandon mentioned he was hiring employees on the same podcast that where you talked about his Solo 401K.) And, what if you have multiple businesses/entities… can you set up a Solo 401K in one business that has no employees, but not offer a 401K in another business that does have employees?

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

Nate, Solo 401k plan is designed for owner-only businesses. If you have part time employees (less than 1000 per year) working for you then you can legally exclude them from participating in the plan. If you have an employee working for you more then 1000 hours per year then by law you have to offer them the same benefits (participation in a retirement plan), but since Solo 401k plan not able to include any other employees other than business owner and his/her spouse – you will need ‘full version’ 401k which is much more difficult to administer and is significantly more costly. If you own a business with full time employees – that makes you ineligible for a Solo 401k, even if you have another entity without any employees.

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

Nate, there are number of factors you need to consider when making a decision which retirement plan best fits your needs. If you know for sure that you will be hiring full time employees in the next year or two then it is possible that Solo 401k plan may not be the best choice for you. But like I said there are other factors you must consider. Feel free to contact my office and request your complimentary consultation, this way I can take the time to understand your current situation and long term goals and be in a better position to give you reasonable recommendation.

Nate T. Investor from Tempe, Arizona

Replied almost 5 years ago

Thanks for the reply Dmitriy! So if I understand you correctly — If I have a business with no employees, and I set up a Solo 401K, but then I need to hire employees 2 years from now, I would be required to cancel my Solo 401K and set up a company 401K offered to all employees. Is that correct? If so, that seems like a pretty big reason to NOT set up a Solo 401K.

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

David, you are correct: Solo 401k plan will work for for those who are either self-employed or own a small business without FULL-time employees, not including business owners and his spouse (they are considered owner-employees). Also, part time employees can be legally excluded from plan participation (someone working under 1000 hours per year, which is about 20 hours per week). And if you are outsourcing some of the work – you are also OK because independent contractors are not considered employees.

Scott Lymburner Rental Property Investor from Arlington, TX

Replied about 5 years ago

David, I am not sure I understand the benefits of investing inside a tax deferred retirement account like a non Roth 401k or non Roth IRA. If I purchase rental property inside an IRA the cash flow goes back into the IRA. When I take the money out isn’t it taxed at ordinary income rates? If I have used leverage properly when purchasing the rental property not in an IRA the cash flow is tax free. Am I missing something? Scott Lymburner

David Krulac from Mechanicsburg, Pennsylvania

Replied about 5 years ago

Scott, I’m not a CPA or attorney. I am a real estate investor. Even if you have a Traditional non-Roth IRA or non-Roth 401K accrues income tax deferred. In the same regard as a Section 1031 Tax Exchange, the money that would be going into paying taxes is retained in the IRA, leaving you with more money to invest currently. Recently I sold a property with a $300,000 gain, albeit not in an IRA. The tax bill was about $60,000. If that property was in an IRA, even a non-Roth the money would stay in the IRA, rather than going to Washington and be available for subsequent purchases. Another strategy would be to convert your non-Roth IRA into a Roth IRA by paying the taxes now and never paying taxes again.

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Scott: Another thing to consider outside of the tax world is simply to compare ROIs. As an investor, if you can produce significantly higher returns with real estate or other non stock assets, it may make sense to go down that route as opposed to the stock market even though you trade capital gains tax for ordinary income. For example, we love having note investments in a retirement account because it is normally an ordinary tax item =)

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

Scott, generally, it would be better to buy real estate outside of a retirement account so that you can take advantage of the tax benefits (depreciation) and invest in notes with your 401k like Amanda said. However, everyone’s situation is different and there is no uniform investment strategy that would work for all. For example, you may not have cash in your savings account to invest into a great deal on a property you came across but have some cash in your 401k so you don’t have to pass on this opportunity. The bottom line is that self-directed IRA or 401k allows you to invest in alternative assets such as real estate, mortgage notes, tax liens, trust deeds, private placements and private businesses, etc. etc. and not be confined to stock market investments – that is why you want to use self-directed retirement accounts (if you have IRA or 401k you have to invest those funds somehow, wouldn’t it be better to invest into something that you have grater control of with less risk and greater returns?).

Karen O. from NYC, NY

Replied about 5 years ago

Great show today. Thanks Amanda. And Thanks Josh and Brandon. You posed some really great questions and gave great real life examples. Many of the things I heard today, I was aware of. However, one thing that can not be stressed enough, is that not all CPAs know all things about your business. There are so many areas of accounting and the tax laws that relate to them. A person who is knowledgeable about the manufacturing or financial services business, does not necessarily know the intricacies of the real estate investment business. It’s important that an investor try to match up their accountant’s skills with their business. Otherwise, as the gentleman who didn’t take an allowed depreciation deduction probably now knows, it can be worth hundreds if not thousands of dollars. Keep up the good work.

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thank you for listening and sharing Karen! Glad you enjoyed it.

James Basilone from Somerville, NJ

Replied about 5 years ago

Great podcast! Not that I like to get into politics, but for the last question, if you like capitalism, or America for that matter, please don’t vote for Bernie Sanders, the self proclaimed socialist. He will destroy the American Economy…

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks for listening James and i will continue to stay out of the politics aspect…=)

Angelou Masters Investor from Oakland, California

Replied over 4 years ago

Amanda I purchased your book and also refered it to several friends that purchased it. Overall I enjoyed the book and found it very informative. However there where two areas I would have loved to get your expertise. One is how to have your LLC pay for your house while you live there rent free or for minimal rent. I hear about guys doing that all the time. The other us how do have you LLC pay for your car. We see the guy on the show Flipping Vegas driving all kinds of expensive vehicles, some have his company name and logo, others don’t. I would really appreciate you insight on this or perhaps a post!

Brock Adams from Chapin, South Carolina

Replied about 5 years ago

Good Show. Came in late but was glad the podcast was available. Question: Specifically with funds that have been initially contributed, received a tax deduction, and will at some point in the future have to pay taxes. How is the RMD (Required Minimum Distribution) pulled out of the Self directed IRA or 401 when the asset is tied real estate or notes?. I have clients who have the 401k and IRA retirement funds in mutual funds. Their current custodians are handling the RMD distributions for them when they turn 70 1/2 however I have not research enough as to whether Self directed custodians handle this for their customers or if individuals handling their own solo accounts would want to handle this or pass on to their CPA to provide as a service.. I know RMD calculations are not complicated however you don’t want to run afoul with the IRS.

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Brock: The RMDs are required for SD accounts just like the regular retirement accounts. In the example of an accounting holding a rental property, people generally distribute use the liquidity to distribute the RMD first (ie accumulated rental income). In addition to that it is possible to RMD for a portion of the ownership of that property as well (ie 1/10 of the property is distributed). It is also possible to sell that asset in the retirement account as well and then distribute the cash over time. Thanks for tuning in to the podcast!

Brock Adams from Chapin, South Carolina

Replied about 5 years ago

Thanks Amanda for the reply.

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

It is very important to do proper planning when investing in real estate with retirement accounts. If you come to the point of RMD and all you have is a property and no liquid cash – that is poor planning. It is my personal goal, as well as many of my clients, to accumulate enough income producing assets (real estate, trust deeds, etc.) so when the time comes to pull the distributions – I can just pull the cash flow out without touching the principals. This would be an example of proper planning. Of course everyone’s situation is different and it is possible to face an issue like this. Possible solutions would be to take partial in-kind distribution like Amanda said, but this would be someone complicated as every time you do that property would have to be appraised and you would have to split all income/expenses according to the ownership percentage from that point on. Another option perhaps could be selling portion of the property to another investor. The bottom line is that events like RMD must be planned for.

Christine

Replied about 5 years ago

This podcast is GOLD! So much information. Amanda,would your book apply to a Canadian audience?

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thank you for listening Christine. The books is based on loopholes for US taxes so if you are someone who invests in US real estate, the ideas should be helpful in assisting to reduce US taxes. It does not discuss any foreign taxes unfortunately as that is not our area of expertise. If your tax advisor abroad is interested in learning more about US tax strategies that may help you it may not be a bad idea to send him a copy. =)

Yasmine Bisumber Realtor/Investor from Ft Lauderdale/ Miami Florida

Replied about 5 years ago

Amazing podcast, really got my gear turning. I need to pick up a copy of your new book and get the full details. Thanks for sharing… lol and thanks for not being boring 🙂

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks you Yasmine! I received strict orders from Brandon and Josh to not be boring so I am glad it worked for you!

Jesse Peña from Charlotte, NC

Replied about 5 years ago

Hi Amanda, WOW, as a new RE investor you just saved me thousands. Thank you for putting the new book together. Much success, Jesse

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

I am so glad to hear that Jesse!!! That is what we set out to do with the podcast and book so I am so happy to get your feedback!

James Charles from Hollywood, Florida

Replied about 5 years ago

Hi Amanda. I was wondering about this. Im a new investor n i have a full time job. I know I’m not eligible for the solo 401k. What is it that i can get into so i can receive a simular tax break like a full time investor?

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Hi James: Just because you have a FT job does not automatically mean you cannot have a SoloK…you just need to have other earned income. Besides there there are also IRA and Roth IRA potentials. This would definitely be something to discuss with your CPA when you meet with them.

Chris T. Investor from Downers Grove, IL

Replied about 5 years ago

Great information! We’re going to buy the book. Thank you.

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks Chris! Hope you enjoy it!

James Charles from Hollywood, Florida

Replied about 5 years ago

Thanks Amanda for the previous answer and another thing, do you think its a good idea to tranfer my company 401k into a solok? This is some real valuable information that i will definitely use. I will discuss with my CPA but its always good to get different opinion on certain thing

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

James if you are eligible and if your investing plan can take advantage of the benefits of the SoloK then it may be a great strategy.

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

Typically, if you are participating in an employer-sponsored plan such as 401k you will not be allowed to roll it over to another qualified plan until you are either no longer working for the company (it then becomes past employer 401k) or reach a retirement age. There could be some exemptions but this is pretty much the rule. You can check with your plan administrator if “in-services distribution” is allowed with your 401k plan. Also, with conventional retirement plans your investment options limited (stock, bonds and mutual funds only). With self-directed IRA or 401k you have virtually unlimited investment options – that would be one of the main reasons to switch. When it comes to investing it is very important that your investment are diversified and SD IRA/401k plans allow you to do so. “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.” Ecclesiastes 11:2

Ken Green Investor from Toronto, Ontario

Replied about 5 years ago

Thanks Amanda for the information you shared. I found this very educational and just bought your book. Looking forward to diving into it. I’m a CPA but in Canada and found most of the tax strategies you discussed also apply here. I’m about to set up entity structure to start investing in the US and I will be getting in touch with you for some input. Thanks again.

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thank you for your feedback Ken. Love getting feedback from other CPAs! I believe there were some questions in this thread above on others wanting to know about how/if these strategies can be applied to foreign investors so if you see any of those and can give your feedback I am sure that would be appreciated here.

Mel Griffin Real Estate Professional from Elkridge, Maryland

Replied about 5 years ago

IRA’s & 401k’s can’t touch IUL’s for Retirement Investment Vehicle ! No Penalties for Cash Withdrawals, Tax Free, When Structured properly. Acts as you own private personal Tax Free Bank. While it Builds Cash Value over Time. I’ve seen one Product that has a .075% Floor and a 15% Ceiling ! 15% Ceiling in exchange for Never Losing any Money !

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks for your feedback Mel. I agree that Insurance can also be a wonderful product when it comes to tax preferred vehicles for some investors. =)

Joe Kim Rental Property Investor from SF Bay Area, CA

Replied about 5 years ago

Great podcast! Shout out to my CPA extraordinaire- Amanda Han. She’s the BEST! Just curious…can I get your book for free as your client? You can expense that right for taxes? (I meant for giving your book for free) Ok, I’m joking. I just bought it now! Trying to read some of it for 2015 tax prep.

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Haahaa…thanks Joe! I would love to give out free books but unfortunately you will have to ask the Publishers for that (hint BP). Of course when you buy one I will make sure it is tax deductible for you.

Gary Hurst Investor from Belton, Texas

Replied about 5 years ago

Oh My Goodness, This Podcast may save us Tens of Thousands of Dollars. We actually bought 18 new A/C units. Funny you mentioned A/C units. Thanks for the Podcast Amanda was incredible. Is she taking on new clients?

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

So glad you learned about the new tax changes from the podcast that may be able to save you some taxes! Feel free to reach out to our office anytime.

Lance Nalezny Investor from Mundelein, Illinois

Replied about 5 years ago

Great information on the podcast Amanda and BP guys! I just had a meeting with my CPA discussing some of these issues. She had me set up a corp when I started flipping for tax benefits about 5 years ago. I also have 2 LLCs with a house in each that I am renting. She explained this is for asset protection. My question is do I need an LLC for each property to protect myself? I am going to buy your book right after this email is sent. Thanks!

David Krulac from Mechanicsburg, Pennsylvania

Replied about 5 years ago

I’ve bought and sold over 900 properties; and I didn’t set up 900 LLC, just saying.

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Hi Lance: if you are referring to the rentals then this is an asset protection for your attorney because tax wise there is generally no benefit/detriment when it comes to LLCs. Thanks for listening to our podcast!

Brock Adams from Chapin, South Carolina

Replied about 5 years ago

It certainly helps to carve out each property separately into its own LLC. if you are buying properties and holding for rental purposes. I have each of my properties in separate LLC for asset protection purposes only. It can be burdensome with seperate bank accounts and entitiy but it has some merits important to me which for now is mainly asset protection

Account Closed from Los Angeles, CA

Replied about 5 years ago

that is a great podcast! Listened and took notes ! Bought a book with bonus material – going to read it all this week!

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks Tatiana! Hope you enjoy the book and the bonus materials!

Leslie

Replied about 5 years ago

Hi Amanda, How important is it when you own rental properties claim losses instead of gains.

Annelyse Finley from San Francisco, California

Replied about 5 years ago

Just listened to the podcast this morning–thanks for all the great info. When choosing a CPA, does it matter where the CPA is located? For example, I live in San Francisco but my goal is to invest in properties in Oregon and Arkansas. Should I have a CPA(s) located in the states where I intend to invest? Or would a California CPA be just as qualified to advise me on issues regarding out-of-state investments?

Joe Kim Rental Property Investor from SF Bay Area, CA

Replied about 5 years ago

I live in the SF bay area too and Amanda Han has been by CPA for 2 years now. She’s been great! I have properties out of state – Texas, Tennessee, Indiana. newly acquired in Illinois, Georgia for 2016 You do not need a CPA for each state as far as I know but I would ask Amanda about it. -Joe

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks Joe! Although you do not need to have a CPA in each different state you invest it, it would be a good idea to work with a CPA who is well versed in real estate and have experience in multi-state taxes. If you are unsure, it would be easy to ask them what state they have experience with and if they are comfortable with practicing in that state. Thanks for listening to the podcast!

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

If this is not your primary home and instead an investment property then it is very important to report it correctly on your taxes. If this is something not reported in the past and you have concerns then make sure to speak with your tax advisor to get their recommendation. Thanks for listening to the podcast!

Alex Franks from Rock Hill, SC

Replied about 5 years ago

Big sitting here answering folks questions since 4 am on the site . Listening to this pod cast. I have had a pad and pen out writing so much down. Awesome just awesome Alex

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks Alex. Glad you had a lot to write down!

Peter Manzo Investor from Stamford, Connecticut

Replied about 5 years ago

Amanda, Just finished listening to your webinar and I must say it was filled with useful tax strategies. Thank you for sharing that information with the members of Bigger Pockets. I personally invest in real estate and own two properties in New York suburbs and always looking for ways to be more profitable. Thank You, Peter

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks Peter! Glad you enjoyed the podcast!

Bill Wallace Residential Real Estate Agent from Mound, Minnesota

Replied about 5 years ago

Amanda – on your podcast you mentioned new 2015 tax rules regarding depreciation. You talked about bonus depreciation and then I couldn’t catch the 2nd part. It sounded like a “deminimalist” deduction (I’m sure I got that word wrong. Allows deductions of 100% of up to $2,500? Do you have a link to that new rule or the correct word so I can look it up? Thanks!

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Hi Bill: It was de minimus rule and you are correct, certain new fixed assets of up to $2,500 per item may be deductible in full instead of having to be depreciated. Thanks for listening to the podcast!

Hector Sapinoso from San Gabriel, California

Replied about 5 years ago

That was a great show! I’m just starting out but picked up the book and bonus materials and can’t wait to start digging into them. On almost every show we hear about cash flow and passive income, but I always wonder what the tax benefits and implications are for investors. Thanks Amanda for putting this together!

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks for your comment Hector. Hope you enjoy the book!

Kevin Reynolds from Irving, Texas

Replied about 5 years ago

Amanda, I am hoping you or Josh can help me with this. I got a link and code for all the pdf files. Even though I ordered with in 10 days, I do not see anything about the video that you recorded about the self-directed 401k. Did I misunderstand or has there be a little mix up? – Kevin p.s. I am really enjoying what I am reading so far in the book(s).

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Hi Kevin. There should be link to the audio for you so my recommendation is to send an email to support at BiggerPockets and they should be able to help you get that downloaded. Glad you are enjoying the book!

Marcus Sedberry from Waco, Texas

Replied about 5 years ago

GREAT PODCAST!!! So many great tips! Thank you!

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Thanks for listening Marcus and glad you enjoyed it!

Shaun Hunt from Cedar City, Utah

Replied about 5 years ago

First of all, grat podcast! I purchased the book and am enjoying it. I, too, find it a little difficult to track traveling expenses. Four of my rentals are within four miles of my house. The other two are within seven. In April, of last year, I made many trips back and forth that I didn’t write down. I am going to come up with an average amount of travel for each particular stage of rehab and hope that works. What I am understanding from the book is that I need to preplan trips and see what part of the trip can be tax deductible. My daughter gets married in a few days. We need to travel and stay overnight for two nights. I heard about Airbnb here on Bigger Pockets. Instead of getting two motel rooms for each night in order to have enough room for my family, we rented a basement apartment. I have considered using a rental of mine as a vacation rental, since we are close to several national parks. My thoughts are to visit with our host and find out how to set up my place as a vacation rental. That was planned even before reading the book. I will be traveling with a total of eight people. The #1 reason for travel is the wedding, however I would like to involve enough business for a legal tax dedution. Any thoughts? Which travel expenses would I want to keep track of? Gas, food, entertainment, rental, etc? Would I count food for whole family or just my wifr and I? Thanks in advance!

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

Shaun I am not give you specific client advise on the forum but yes the key is to have documentation of pre determined business purpose prior to leaving your home for the trip. General expenses you may need to allocate between personal and business while business specific items (ie cost of lunch meeting with a realtor) my be fully deductible. More importantly….have a great time at the wedding!

Stephanie Garcia from Sacramento, California

Replied about 5 years ago

Hi @Amanda Han I have a rental property. Can I claim depreciation and also input the interest expense? What do they mean when they say amortizing the life of the loan instead of taking depreciation? Thank you, Stephanie Garcia

Amanda Han Accountant from Fullerton, CA

Replied about 5 years ago

You should be able to take depreciation and interest expense for the rental you own. Amortization is similar to depreciation which simply means taking the deduction “over a certain period of time”. Thanks for listening to the podcast!

Account Closed from Plainview, New York

Replied almost 5 years ago

Thanks Amanda for all of the tips and advice I was curious though how to find the right person to handle your (my) taxes? I had a small business for which I had a CPA that I let handle everything one day after 5 years he decided to take a corporate job offer and left me with a 2 weeks notice while 2 weeks in most business situations is great for someone that handles payroll, taxes, bookkeeping not so much. I was forced to take a crash course in quickbooks to get my payroll done and so I would never be at the mercy again of something like that. Since I was doing all of quarterly taxes and payroll all I needed really was a bookkeeper and someone to bring it all together at the end of the year so I hired an EA to do my books. After about 2 years with him he hit me with a huge bill that didn’t make sense because my business had been fairly consistent so I got a 2nd opinion and he found deductions he didn’t take and so he fixed it and I hired him to do my books, he is just a bookkeeper/tax preparer. Well after about 4 years with him 2 years ago he forgot to turn in my wifes W-2 for which he had been doing the previous 2 years. He swore he asked me for it and I never gave it so he assumed she didn’t have one anyway big mess I was quite upset but I took some of the blame and all of the penalty and interest. I’ve sold that business and am venturing into real estate both consumer sales and personal investing and he’s not on board with some of the things such as SDIRA’s and so forth. He’s a great guy I hate to leave but if I’m going to now is the time. All of this being said the original question is how can I find or look for the right person for me and my needs instead of skipping around when there is a problem and just settling on someone you think is good for the moment. And what if I don’t stay in real estate should I look for another person if I change professions or careers. I know there is not just a magic answer to solve all problems but any advice would be helpful. Thanks so much!

Amanda Han Accountant from Fullerton, CA

Replied almost 5 years ago

Hi Greg: Thanks for listening to the podcast. My advise to you is to take your time and interview several tax advisors to find one that works well with your needs and your work style. It also could make sense to go with a firm that has a few CPAS and not just a sole practioner so that if that person is not available then at least there are others on their team who can assist you. If real estate is your business now then it makes sense to work with a CPA who understands that industry. IF you do change industries in the future you can decide at that time whether it makes sense to change. Hope this helps.

Erik Bowling Investor from Mason, Ohio

Replied almost 5 years ago

Thanks Amanda. This was very informative. Do you have a list of CPA’s around the country that specialize in real estate? In am in Cincinnati and have a complex UBIT question. I have yet to get an answer. Perhaps I can wok with your company???

Amanda Han Accountant from Fullerton, CA

Replied almost 5 years ago

Erik: Sorry I currently do not have a list but that is a great idea which I may look into. We do work with clients all over the US so feel free to checkout our firm website. Thanks for listening to our podcast!

Alex Saleeby Specialist from Beaumont, TX

Replied almost 5 years ago

Great podcast! Thanks for the tips. Looking forward to reading the book. Thanks, Alex

Amanda Han Accountant from Fullerton, CA

Replied almost 5 years ago

Thanks for listening Alex and glad you enjoyed it!

Dennis Weber Real Estate Investor from Indianapolis, Indiana

Replied almost 5 years ago

Awesome! This podcast should be mandatory!

Amanda Han Accountant from Fullerton, CA

Replied almost 5 years ago

I completely agree with you Dennis…but that is just coming from me, a tax nerd. =)

Marichelle Lao Investor from Glendale, California

Replied almost 5 years ago

This podcast was so informative. I bought the book after i had already filed my taxes, but now i know what can and can’t be done moving forward. Thank you for all the useful information! The book was so good, a fast and easy read with a wealth of information, literally! A thousand times thank you!

Amanda Han Accountant from Fullerton, CA

Replied almost 5 years ago

Thank you so much for the feedback Marichelle! So glad you learned some helpful information and more importantly that you actually enjoyed reading a “tax” book!

Lani A. Payne Investor from Dallas, Texas

Replied almost 5 years ago

Hi, Amanda! Thanks so much for taking the time to do yet another amazing podcast! I do have a quick question about your quick tip regarding a corporation: As a C-corp, you are subjecting yourself to a double layer of tax – 1 at the corporate level and 1 at the shareholder level. I understand trying to shield income from self-employment taxes (and maybe even the 3.8% Obamacare tax), but how do you get around the double layers of tax? Are you thinking of an S-Corp and having that income flow through to you? I like S-corps, but some of the restrictions on those entities are very difficult to keep up with, and if you fail one of the requirements (Shareholder requirement or passive income requirements), it may disqualify your S-Corp. Also, I have been trying to figure out how to get around depreciation limitations under section 469. I know claiming yourself to be a real estate professional so that all of your depreciation can offset some of your ordinary income may trigger audit risk. In addition, it’s just so hard to even qualify for that safe harbor (750 hours and 51% of your income producing activities – especially when “researching” potential investments doesn’t qualify). Do you have any other pointers regarding this limitation? Finally, I just want to thank you for the self-directed 401k tip. I didn’t realize that that was an option for 1099 consulting income. That is really useful information! Thanks so much again! Lani

Daniel Collins Investor from Buffalo, NY

Replied almost 5 years ago

Just hear this amazing podcast. We have two condos. One is paid off and the other we have a mortgage out on. I heard the you can not set up an LLC if there is a mortgage out on the property. Is this true? How do I go about setting one up? What might be the cost? Thanks Dan

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

Daniel, you can set up an LLC and transfer the property title to the LLC. If you have a mortgage on the property however, you are running a risk of having lender calling “due on sale” clause. But from what I’ve heard from those who done it that as long as you are making your mortgage payments on time it is unlikely to happen. Just make sure to be aware of the risk.

Catherine Do Accountant from Oceanside, California

Replied almost 5 years ago

Amanda! What a great show. I am interested in the SoloK or self-directed 401K, but have really been having trouble figuring out the following: What companies are custodians for these types of retirement accounts? Also, can I convert a traditional IRA or 401K (about to roll it over from former job) to a SoloK? If yes, how do I do that?? Have been looking for answers to these questions, and never quite get them. Thank you in advance and I’m sure others would love this information as well.

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied almost 5 years ago

Catherine, the good news is that you don’t need a custodian for a Solo 401k plan. And truly self-directed Solo 401k plan (that is what we did for Brandon Turner) allows you to have a checkbook control over your retirement funds, thus eliminating unnecessary custodian fees and delays that come with that. Yes, you can convert both Traditional IRA and 401k form the former employer into Solo 401k. Solo 401k plan will accept rollovers from any qualified retirement plan with one exception: Roth IRA. The best resource I can share with you to learn about Solo 401k would be a recording of a webinar on this topic, I don’t see a way of posting a link here but I’ll send it to you in a private message. Hope this helps.

Kim Stofan Realtor from Sacramento, CA

Replied over 4 years ago

Newbie investor here trying to find my first deal. I’ve been listening to as many podcasts as possible in my spare time and I absolutely LOVED this podcast. I took so many notes. I can tell you really know your trade and I appreciate you sharing your expertise!! Thank you!

Jean Nicolas Investor from Washington, DC

Replied over 4 years ago

Hello Amanda, I’m a newbie to BP and enjoyed listening to your podcast. I have an inherited IRA with RMD that I’m trying to decide what to do with. Can I roll that into a self directed IRA even though it has RMDs? If so I’ll be interested in working with you to do that. Thank you, -Jean

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied over 4 years ago

Jean, inherited IRA can be self-directed. I will remain to be inherited (in other words it will have deceased name on the account). The same RMD and other rules would apply to the new account, but with self-directed IRA you will be able to make investment into alternative assets such as real estate, do private lending, etc.

Jean Nicolas Investor from Washington, DC

Replied over 4 years ago

Thank you Dmitriy. Go to know I am still able to grow the inherited IRA through other forms of investing. Since I’ll be required to take the RMD (Required Mimimum Distribution) I’m guessing receiving monthlty real estate income will meet this rule?

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied over 4 years ago

Jean, depending on your age, the account balance and the income from potential investment you may be able to just use the income to cover the RMD without touching the principal.

Brian Corbett Investor from Toledo, Ohio

Replied over 4 years ago

Hey Amanda, thank you so much for this awesome podcast. As like everyone else…quick question on the “bonus depreciation” I replaced two HVAC units in a rental as well as all of the kitchen appliances. I looked at my taxes and noticed my accountant depreciated these items over 27.5 years (which seems crazy as the thing will likely last like 10) but anyway…further google searches seems to indicate that HVAC systems are not allowed. But would the kitchen appliances be allowed? all items are brand new. thanks

Gurjeet Brar from Twinsburg, ohio

Replied over 4 years ago

Hello all I am a new investor. Where do can go to learn more about solo 401K and options on what to do what that money in term of RE investment ?? i have traditional 401K from my former job that i just left 1 month ago. I am debating what to do with it since i have read so many options here to invest that money. Thank you

Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA

Replied over 4 years ago

Gurjeet, this blog post will give you a good overview of the Solo 401k: https://www.biggerpockets.com/blogs/2810/blog_posts/21298-solo-401k-advantages As far as the RE investments you need to decide what exactly you want to do – there are many options available such as rentals, flips, private lending, tax liens, trust deeds, NPN, etc. etc. If your investment experience is limited I would suggest getting started in short term private lending to flippers, but you have to develop right relationships and lend to trusted borrowers.

Michael N. from New York City, New York

Replied over 4 years ago

Hey guys! I just watched this podcast and its super informative. I am a newly certified CPA so I have no experience in practice, but what I have been taught is that setting up a C corp could expose you to double taxation. This happens because all income to your C-Corp will be taxed at the applicable corporate tax rate (30 or 35%, I cant remember). Then your dividends come out of your corporation’s after tax earnings to you, at which time you pay the 15% dividend rate on your personal return. Your effective rate would be the total taxes you pay after both layers of taxation. In contrast, income to your pass through entity (S-corp, LLC,Partnership) would immediately be taxable as ordinary income on your personal return. You are exposed to SE taxes on income from your entity, but half of it is deductible on your personal return.The decision you make regarding an entity should depend on your personal tax rates, required liability protection, and what the effective rate would be from your C-Corp. I’m sure this is full of holes since I have little practice, but I feel I should say something in case I am correct. LOL. Thanks Brandon/Josh.

Tracy R. Investor from Marietta, GA

Replied over 4 years ago

Thanks for this podcast – I’m still just educating myself from various materials and podcasts on your site, and it was indeed interesting to start to think about setting things up properly tax-wise. My question: I think I caught that fix and flip people should set ourselves up as some sort of business “entity”, but I didn’t catch whether they should set up their entity in an LLC or an S Corp, not sure whether that was addressed and wondering if you could clarify, if possible. Thanks again!

Seth C. Investor from Monterey, California

Replied over 4 years ago

I have a couple of questions from the podcast. 1) If I must have earned income outside w-2 for Solo 401k, is there a minimum? Could I have a minimal 1099 and invest significantly more in the 401k? 2) You said having an entity is not necessary for many of the deductions you talk about. Does that mean literally no entity, or do you need at least a sole proprietor’s business license? Thanks!

Charles Chang from Hackensack, New Jersey

Replied over 4 years ago

Hi All, Great show! I just heard the show and just bought the book through BP. I miss the window for getting the Solo 401K interview. Is there anyway I can get a copy of it. Please…. 🙂 Thanks.

Don Spafford Investor from Idaho Falls, ID

Replied over 3 years ago

This is one of the few podcasts that I’ve listened to more than once. The Tax Strategies book was the first BiggerPockets book I bought just about 1 year ago when I first joined BP. I loved the book and highly recommend it to anyone. I need to go re-read the book now to get prepared for upcoming taxes. Amanda is awesome at making complex problems easily understandable. not sure if I can afford her though 🙂

Salome Dcunha from Newport, Kentucky

Replied over 3 years ago

Hi Amanda! I’ve just started my real estate journey and I loved this episode! Thanks for all the great tips and advice! Since I missed the boat on the freebies with the book launch, is there a different way to access the items mentioned – (1) Retirement accounts (2) When to call your cpa (3) Cpa fire round (4) What records to keep and for how long (5) Video interview or transcript for self directed ira to buy real estate deals

Juan J Zamudio from Huntsville, Texas

Replied over 3 years ago

After listening to this podcast, I looked up my taxes from when I started and found out that I was not taking the depreciation on my rental. Lucky for me, I had just been renting for two years. So when my filled my taxes I took the depreciation. I later went to the person that had done my taxes and did an adjustment. I just received a refund check of $941 for that one year. I am glad that I listened to this podcast.

Nicole Heasley Real Estate Consultant from Youngstown, OH

Replied over 2 years ago

Hi Amanda! What an amazing show; I can’t wait to get a hold of your book! A few questions: 1) What do you mean when you talk about writing off “equipment and appliances”? I assume equipment would refer to things like a computer and printer. When I hear appliance, my brain goes straight to kitchen appliances, but I’m not sure that’s what you meant. 2) Did the overhaul to the tax code affect much of the content of your book? Is it still applicable under today’s tax code? 3) You mention that people hate keeping receipts. Do you have any advice regarding organization methods for storing physical receipts? I’ve been on the lookout for a free or inexpensive app that will scan and organize my receipts for me on the go until I get a chance to load them all into Mint, which is what I use for my own personal finances. I have a feeling I will need to find a new program now that I’m acquiring investment properties, though. 4) I have 2 investment properties which includes my primary residence. I’m working on obtaining a 3rd through a 203k loan. At this early point in my investment career, do I need a CPA?

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