Do investors know what their tax rate is?

Tax, SDIRAs & Cost Segregation

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Do investors know what their tax rate is?

Jonathan Bock

Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes

Tax and finance practitioners what % of your clients have any idea ? I find myself surprised at times

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Stuart UdisPro Member

Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes

Wait, there's tax consequences when investing in real estate? I thought I could capture all of the tax saving benefits of cost segregation and the tax benefits that come from my LLC. It's all I read about in these forums, it must be true :)

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Diyan Yap
Accountant · Austin, TX · Member since 2024 · 53 posts · 35 votes
2y
90% of my clients do not know. Even though I told them a few times, they will ask again.
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Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 901 votes
2y
From my experience, most people don’t pay much attention to their tax rate until it’s tax season, but a small percentage are proactive and keep track throughout the year.
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Joshua ThompsonBusiness Member
Accountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
2y
I agree with the above. Most people don't think about or sometimes care about their tax rate. I would say of all our clients, maybe 1% ask us per year what "tax bracket" they are in. We find they are more worried about the final balance due or refund. We do include their tax rate on their return with supplement information but it only becomes a true topic of discussion during our quarterly calls with certain clients.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
2y
I suppose the question is does it matter?(especially for those involved on this website)

The reason I mention if it matters on this website is because most are real estate investors(long term buy and hold) and will most likely operate at a tax loss which doesn't have an impact on taxes.

The second point is, will you invest or not invest in a good investment because of what your tax rate is?
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Charles Perkins
Member since 2024 · 222 posts · 161 votes
2y
As both an investor and retired CPA, I know very well my tax and finance issues. It was my habit also to instruct those who ran any business to be knowledgeable about the basics of tax and accounting in order to make better daily decisions. Not all would take the time, but I liked to encourage it because it can help avoid costly mistakes.
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
Quote from @Basit Siddiqi:

I suppose the question is does it matter?(especially for those involved on this website)

The reason I mention if it matters on this website is because most are real estate investors(long term buy and hold) and will most likely operate at a tax loss which doesn't have an impact on taxes.

The second point is, will you invest or not invest in a good investment because of what your tax rate is?

For me my tax rate is a lagging indicator not a leading indicator, I know it during or toward the end of the year and finalized when I finish the year. I cannot go back and change it, it has zero impact on my decision making ability for real estate deals.
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Jonathan Bock
OP
Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
2y
@Chris Seveney
Great to hear your perspective! I see so much fear around taxes and the loss aversion people feel is very real to them.
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@Jonathan Bock
While paying taxes is not fun and trying to defer them is part of the game - my wife always jokes that the more you pay the more you make and if someone is paying six figures in taxes - well they are making a very decent living.
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Wesley I.
Investor · San Diego, CA · Member since 2019 · 286 posts · 135 votes
2y
@Jonathan Bock
Most probably dont know that their marginal tax rate is different from their effective tax rate.
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Jonathan Bock
OP
Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
2y
@Wesley I. Exactly it's very low probability
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John Mason
Member since 2024 · 1k+ posts · 351 votes
2y
I would not let it affect buying decisions though
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
2y
For some people, taxes are by far their largest expense (near 50% marginal rate, and that's just income tax...excludes all the other taxes). They know their rate.
The stock forms from my CPA include a tax comparison page that makes it easy to calculate the effective tax rate and compare line items year over year.
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Allan C.
Rental Property Investor · Member since 2018 · 826 posts · 810 votes
2y
@Jonathan Bock 52.25% of 0 is still 0. Not sure why tax rate matters when net passive earnings is the more important figure.
I think the more appropriate question is whether people know how to differentiate net cash flow from net earnings.
1 Reply
Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
1y
Wait, there's tax consequences when investing in real estate? I thought I could capture all of the tax saving benefits of cost segregation and the tax benefits that come from my LLC. It's all I read about in these forums, it must be true :)
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2 Reply
Jonathan Bock
OP
Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
1y
@Stuart Udis
But TikTok told me.... what do you mean my 10 LLC's won't provide massive tax savings
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Basit Siddiqi:

I suppose the question is does it matter?(especially for those involved on this website)

The reason I mention if it matters on this website is because most are real estate investors(long term buy and hold) and will most likely operate at a tax loss which doesn't have an impact on taxes.

The second point is, will you invest or not invest in a good investment because of what your tax rate is?

agreed it does not matter for the fully engaged RE professional income varies from year to year.. this is why we hire CPA. it is what it is.. now we can take steps through the year.. like buying things that we can get accelerated depreciation on etc etc.. Like vehicles airplane or equipment for your contracting business .. or real estate with its bonus depreciation but its going down and not as attractive as a few years ago for sure. or those that are full time landlords and have a lot of depreciation already.. But for us in the transactional business we need write ons not write offs.
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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
1y
@Jonathan Bock My CPA recommended I get a bookkeeper at the end of the 2023 tax season.
It was a cluster of a problem getting one due to circumstances beyond my control but I finally found a good one.
The end of the year statement the bookkeeper prepared for my taxes this year cut my accountant’s time in half compared to what I had been providing him.
The CPA gave me my adjusted tax amount from which I could easily figure out what the tax rate would have been but my real estate made my effective amount negative and I have a carryover to next year.
I highly recommend getting a bookkeeper for those of you who are like me and aren’t savvy enough to organize your own books.
It was a game changer.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
1y
even I don't know
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Jonathan Bock
OP
Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
1y
@Michael Plaks
The best answers as always !
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Jonathan Bock
OP
Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
1y
Quote from @Alecia Loveless:

@Jonathan Bock My CPA recommended I get a bookkeeper at the end of the 2023 tax season.
It was a cluster of a problem getting one due to circumstances beyond my control but I finally found a good one.
The end of the year statement the bookkeeper prepared for my taxes this year cut my accountant’s time in half compared to what I had been providing him.
The CPA gave me my adjusted tax amount from which I could easily figure out what the tax rate would have been but my real estate made my effective amount negative and I have a carryover to next year.
I highly recommend getting a bookkeeper for those of you who are like me and aren’t savvy enough to organize your own books.
It was a game changer.

Awesome to hear that very cool
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
1y
Quote from @Jonathan Bock:

@Michael Plaks
The best answers as always !
On a serious note, after 10/15 I plan to publish a long post (some would call it a rant) on why I consider the very question of tax rate pointless.
1 Reply
Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
1y
@Jonathan Bock Many investors—likely around 30-40%—know their general tax bracket but often don't fully understand their effective tax rate or specific taxes on income types (e.g., capital gains). Most realize the details during tax planning with their CPA.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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John BowensBusiness Member
Investor · Member since 2024 · 44 posts · 36 votes
1y
I find most don't know how many pennies on every dollar earned they are paying in taxes, including Fed, State, Local, NIIT, Medicare Surtax, Medicare Tax, SS Tax.
I find so many incredible business owners and entrepreneurs out there are really good at making money, contributing to their community, creating jobs, etc., but then don't have time or brain power left to focus on taxes. I'm not a CPA, EA, or tax professional, but I appreciate the time and years it takes to practice in this space and I'm a firm believer in paying for good tax advice!
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