My CPA is very vague.. is this normal???

3 Replies

Hello I am a young entrepreneur. 

This year I have done pretty well and am blessed and burdened to have quite a tax bill coming in April of 18 looking to be around 40k 

When asking my CPA what I can do with the money to lessen my tax burden he is very vague and unhelpful. Now i am new to having a CPA so maybe that is not his job. 

My first thought was to get into real estate however, from what i understand most expenses with real estate have to be depreciated over time. So therefore maybe i shouldn't be looking at real estate as an investment to help with taxes for this year. Is this true or is there another way? Thank you guys. 

If you have income it is difficult to avoid paying some taxes, and tax evasion can get you in big trouble. Taxes are a difficult issue and are hard to avoid from the back end. Prior planning can help some.
Also expenses are not depreciated over time. The cost of a rental is depreciated over time. That depreciation is a non-cash expense that does save on taxes.
Your CPA should walk you through this.

Tax planning is a tough business, I do it for a living as a CPA. Unfortunately real estate alone doesn't offer a ton of opportunities either in a traditional planning sense (i.e. not talking about 1031s, property managment companies, etc.)

With active trades or businesses many times we can advocate for large retirement contributions into 401ks or SEPs which can save a bunch in taxes. For cash basis businesses we may offer ideas to prepay bill's before they are due or to hold invoices. That's tougher (not the prepaying part) in a strictly small real estate entity. The thing a lot of people want is tax savings but not spending money. Unfortunately most tax savings strategies require spending $1 to save a certain amount of tax. A lot of times that dollar is going back into your pocket via a retirement account or as prepaid supplies, etc. but it's still unavailable to you for a period of time. 

The other thing I like to do, is in off years i.e. low income years I encourage clients to pay taxes by moving income into the current year or funding a Roth IRA of some type in order to use deductions in higher income tax years. Everyone's situation is different so it really depends on an individuals situation.

RE depreciation: Under recent tax changes ALMOST everything is deductible in the year its paid. Generally the purchase of the property, getting it to a rentable state, etc. is capitalized and depreciated. Same with most major rehabs, etc.

The one thing I try to avoid telling clients is to go out and spend money for the sake of saving taxes. If a client NEEDS something that's a different story and we can talk about timing that deduction in a year where their income may "pop" into another bracket. I always hear talk though of just going and buying something for the tax deduction and it fails to make any sense.

@James V Sciales

There are no magic wands to reduce tax liabilities. That being said, real estate does offer some unique tax planning options. A CPA who services the real estate industry will likely be familiar with the various strategies within the tax code to help limit your liability. Make sure yours does too.

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