How to shelter income being taxed?

9 Replies

Hi. 

I'm new to the forum and would like to see if anyone has info on how to shelter income from being taxed? This is a hypothetical question since I have not started the purchase of a multi family unit yet. 

My tax guy recommended me to setup a LLC to purchase properties for buy / hold and rent. One of the question I had was what happens to income that I get from rent (minus all the expenses). I was told that the income will be passed as my personal income since I'm the owner of the LLC.

I would like to think that I can save up the income each month so that I can either use that for paying other expenses in the building, pay off mortgage, or invest in other properties.

I would hate to think that all income from rent will be filed as my personal income since I do have a decent paying job.

Any help or feedback would be greatly appreciated.

Thank you.

David

LLC is a liability, not an income, shelter. Depreciation provides a nice depreciation against the properties cash flow, esp. if you utilize accelerated depreciation schedules. Otherwise, you have to pay taxes just like the rest of us.

Hi Chris

Is there a way to save the net of rental income to an account (that won't be taxed) for future property fix? Or, is depreciation the only way to shelter against tax?

Thank you very much for your feedback!

David

No. Income is taxed. But passive income is not subject to FICA tax. If you make it the government wants a cut. To give to folks who don't work - share the wealth. And to pay for the lifestyle of Washington DC.

Thank you for the feedback Arlan.

I agree with @Brie Schmidt . You seem to be confusing the function of and LLC.

LLC is a legal entity that shelters liability from its members. The income flows through to its members.

As others have mentioned when using depreciation of the property and capital expenses, mortgage interest, and operating expenses your taxable income will be less than you may be thinking

To speed up or enhance depreciation you can always cost segregate the property( talk to a Cpa) because it usually isn't worth it on single family properties.

I believe the only way to "earn" income that's tax free is some fancy IRA? Or work outside of the US territories... ? HAH! But there are lots of specifics that make this confusing to me, and exactly when/how to access the money confounds me as well...


But I'm going off what I understand from reading the stuff I don't have any actual real practical knowledge on the matter - perhaps some one floating around here can answer that questions @David Chow  .

I have a self directed 401k that we invest from. It's all sheltered from taxes as long as we keep it in there. 

An llc is good, but one thing I learned from my partner in the last couple years is an LLC still is easy for people to find if they want to sue you. My partner has every house set up in a land trust. Trusts are used by the kennedys and others in that league to protect their assets. Anyone who wants to sue my partner would have a heck of a time figuring out what he owns. Every property is held as a land trust. So he really owns no property on paper.

Hi Brie, Jered, Gabriel, Joe.

Thank you all for your input. It's great to see people answering my post without really knowing me! I'm glad on joined BP!

Yes, I understand that LLC won't do anything to save me from being taxed. I should have been more descriptive. My tax guy told me to setup an LLC for buy and hold and not for flips. My question was more on tips on any additional ways to save income from tax since I would like to use that same income for other investments in the future.

As for Self Directed IRA, I did have one setup where I purchased a 4plex and SFR for investment.

Thank you all for your time! I appreciate it!

David