Tax Saving Idea Thread

29 Replies

Hello!  Let's start a list of ideas we all can do to pay less taxes!  

I heard someone on the podcast recently just briefly say "Learn to live on pre-tax money." And I haven't been able to get that out of my head since. I've been searching around a bit for some real strategies we can start doing to "live on pre-tax" money, but haven't found a real list yet, so I figured we could all collaborate here. 

I have an idea...and maybe a CPA or some other knowledgeable tax expert can help on this...

...so here's my idea:

I want to start paying all our regular ongoing bills and utilities with money straight from the LLC rental income....cell phones (we use our phones for mostly work anyway), electric bill, internet, water, etc etc....

I'm thinking of making a lease where my business rents the home office space from me and my wife, and the rent is roughly equal to the utility payments, or just have that on the lease..."XYZ, LLC will pay Brandon rent by paying the utilities directly"...Our home office is a whole bedroom in our house with desks and printer and computer stations and everything, white board, filing cabinets. The room is 100% used by my business, so I think it's legit to rent it like that. I think it will be better than the home office deduction. (I use the home office deduction for my band, which is my sole proprietorship, another bedroom totally taken over used 100% for band rehearsals)

Please don't say "ask your accountant"...I know, and I have and I will talk to her more about this stuff.  Just curious of what you think of my idea and curious of other ways to legally pay less taxes.

@Brandon McLean the internal revenue code has great ways to help business owners save significantly on taxes. Especially for those who are willing to think outside the box and use the loopholes that they are granted. You are thinking in the right direction but you could complicate things a bit. Do you own your home?
Originally posted by @Brandon McLean :

I want to start paying all our regular ongoing bills and utilities with money straight from the LLC rental income....cell phones (we use our phones for mostly work anyway), electric bill, internet, water, etc etc....

Unless you literally work 24 hours a day, 7 days a week - you are asking for some serious trouble. 

This thread is a disaster waiting to be an explosion of great ideas that don't comply in any way with the IRC. Everyone's circumstances are so different that a catch all thread isn't really a feasible idea. A strategy may save person A. $10k and if executed by person B. will end up costing them $20k. 

Your tax professional should be saving you tons of money through legal, tax savings strategies. 

Running expenses through your LLC doesn't make it a business expense. It does the following:

  1. Breaks the corporate veil so your LLC now offers no legal protection as you've intermingled funds with your personal.
  2. Makes more work for your Tax person to go through and sort out the expenses that are your non deductible personal expenses which in turn= a higher tax prep bill for you. 

And the second thing you described is just how the home office deduction works. You don't need to rent to your business, ect. Self rentals are a huge frowny face per the IRS.

@Daniel Hyman yes, that's the thing, and I realize that. Most people don't "work 24/7".... However, it's kind of my whole deal.  It's a big part of my story - I'm the Rock n Roll Realtor in certain circles around here, and it's true.  I work as a Realtor and Investor, but I also have a band that plays several gigs a month, with 2 albums out, website, merch and everything.  It's a whole part of my elevator pitch/self branding too:  "houses in the daytime, music at night."  SO---ARGUABLY, and it's true too---almost everything we do can be traced back to some sort of activity on one of those two business pursuits -  lunch with client, assistant, or prospect.... and dinner/drinks with the band or promoter.  UPS Store? Real estate flyers and band posters....Clothing? Either business attire or stuff I will wear at a show....When I'm at home, I usually can be found either in the home office doing real estate stuff or in the back band room working on a song, or a recording or setlist, etc.

I understand my situation is unique.  But I hope there's someone else out there who works arguably as much as we do and can write off almost their whole lives, if done properly.  Keeps ringing in my head: "Learn to live on pre-tax money."

@Natalie Kolodij thanks for this.  1) I didn't really consider the "piercing the corporate veil" side of it, just had my eyes set on the less taxes part...2) and right, I don't want to give my tax professional even more work, she already sort of groans at me every time I buy or sell a property and open and close accounts relating to projects, etc

I want to avoid giving IRS any frowny faces lol

@Brandon McLean  

Find a new tax pro ;) One who also invests. 

I know that many of us who work with RE pros have set pricing because we know you guys are all over the damn place. 

When I worked for CPA firms clients wouldn't call because they didn't want a $300 bill for a phone call. 

When I opened my own firm I went to set price. I want my clients to annoy me. I wanna be on the same page WHILE you're trying to do something crazy- If you didn't call to discuss/ask and now it's tax time...well I can't change history. 

@Brandon McLean

Umm, this is not a tax savings idea thread, at least not so far. This is a "reckless slogans from Grant Cardone and similar clowns" thread. :)  Those, err, visionaries love to proclaim how "everything is deductible" and "you are entitled to..." and "let the IRS underwrite your lifestyle" and similar bull.

No, I'm not giving you hard time. I'm having a major issue with them and what they "teach."

Some specific pointers.

  • cannot deduct your utility bills and such and cannot pay them from the LLC. These are personal expenses, and only a portion of them can be deducted via home office
  • cannot treat drinks with your band as a business expense, with an occasional exception like maybe a celebration of a new album release
  • cannot deduct "business attire or stuff I will wear at a show." No, you cannot, there're very specific rules against it, despite the YouTube webinars encouraging you to deduct them (the symphony players lost a court case against the IRS trying to deduct their performance tuxedos)
  • and so on.

I know it's tempting to think you're sticking it to the IRS, but in the end they will stick it to you. Use professional advice, not some superficial garbage from the Internet. Professionals can save you big bucks legally. Peace.

I dont think anyone has actually given any tax savings tips yet so here are some initial thoughts. Start a holding LLC that holds all your other interests in rental properties. It can be 99% owned by you and 1% by your wife or parent. It's much better to run expenses through a 1065 return than a 1040 return. Also you'll have K-1 pickups on your 1040 rather than schedule E/schedule C (always a better move). This also gives you the option to flip income to your wife at a later time if you want her to have higher income to qualify for a mortgage when you're tapped out (not tax savings but good to have the holding LLC).

You can also have your tax bill charged to the holding LLC for a portion which is tax deductible while your 1040 tax prep fees are no longer deductible with tax reform. Other random expenses could be included like a portion of your phone, wifi, travel, or other LEGITIMATE expenses related to running your real estate as a whole (and not to specific properties). Training and learning expenses related to real estate as a whole such as subscription to BiggerPockets, books you purchase that you're studying to learn for real estate, failed deal expenses, business cards, and more.

Hope that helps and good luck!

@Brandon McLean This thread has a lot of bad tax ideas lol, mostly by people who aren’t cpas. I like to deduct half my phone bill, and anything I can. Don’t self deal though and llcs have no bearings usually on tax stuff

@Dan Cournoyer

All of the expenses that you listed, including allocated tax prep fees, portion of the phone bill, travel etc. are equally deductible with or without a partnership LLC.

You cannot arbitrarily shift partnership income between husband and wife, no more than you can without an LLC.

Good thinking, but you do not gain any tax advantage, other than lower IRS audit profile.

@Michael Plaks yeah i was trying to list out a few examples of expenses that may be related to multiple rentals but may not be captured under one specific rental. If i do a deal with Investor A 50/50 for one property and another with Investor B 50/50. Neither of those LLCs are going to pay for half of my phone bill or driving to new deal locators with Investor C. Forming a new LLC would allow someone to open a business checking account and track all of those expenses under one umbrella. I agree they are deductible either way but this will likely lead to someone actually taking the expenses and savings tax down the road.

In addition, if someone is paying $1,000 for their 1040 tax return with 6 K-1 pickups, they could use that same accountant to file a 1065 and 1040 for $1,100 and charge the 1065 (holding LLC) a large portion of that expense. Deducting those fees will go away in 2018 with tax reform so I'd argue there is possibility for tax savings especially with the increasing number of properties.

Hopefully this helps someone track more expenses that they ordinarily would have eaten as a personal expense.

@Dan Cournoyer

Whatever expenses are related to business overhead (multiple rentals) are spread between those rentals. If they are related to K-1s, then they are deducted as UPE - unreimbursed partnership expenses. 

You never need to create yet another company just to capture deductions. There could be good reasons for a management company if your business is dispersed between multiple entities, but not for tax deductions.

@Brandon McLean If you are implying that you can deduct business attire or band attire as an expense on your schedule C-you cannot. Unless your band attire is a costume of a mule or power puff girl that no one in their right mind would ever wear to the grocery store.
Originally posted by @Jamie Engledow :
@Brandon McLean If you are implying that you can deduct business attire or band attire as an expense on your schedule C-you cannot. Unless your band attire is a costume of a mule or power puff girl that no one in their right mind would ever wear to the grocery store.

You'd be surprised. Google some pics of Walmart shoppers. 

I think one of the best 'tax tips' is to just pay attention to 'the little things' that can *maybe* be written off as a business expense instead of paying 'after tax' moneies for it. 

In my case, I am self emplyoed at my 'day job' in addition to my real estate things. So from a tax rate perspective, let's round off to 15% Fed, 5% state and 15% FICA (self employed pay both sides of it). So a total of 35%.

Esentailly what this means is that if you pay for things with 'after tax' money, you need to take home, after taxes, 150% more than if you wrote it off as a business expnese. 

Say a new printer for the home office that is just for work. As a business expense, you pay $300 and write it off. If you think 'ill just put it on my personal card to get points' or the like you now need to earn $450, pay your 35% tax rate and have $300 left over to pay for it. You just wasted $150 or 1/3 of your income!

There are a ton of little things like this that can really add up. To make it simple for book keeping, I HIGHLY recommend setting up a separate checking account with debit or credit card to not have any excuses of 'too hard to keep track of' things. It also make a more clear distinction of personal business  for all sorts of reasons.

Dan Dietz

For tax savings ideas, I'd suggest reading the book "Self-Employed Tax Solutions" by June Walker (or another book along the same line of thought).  While a bit dated, this will allow you get an understanding of the basics so you can be informed of the right questions to ask when meeting with a tax professional.  I'm sure others on this thread can provide other book suggestions that are perhaps more recent.

In general, when it comes to tax deductions:  Be smart, don't play in the grey areas - the risks just aren't worth it.  And, when in doubt, hire a professional!  

Originally posted by @Brandon H. :

In general, when it comes to tax deductions:  Be smart, don't play in the grey areas - the risks just aren't worth it.  And, when in doubt, hire a professional!  

I'm OK with grey areas. In fact, I recommend to my clients that they take advantage of the grey areas. You mentioned risks. The risk of taking a grey deduction is maybe having to return it to the IRS. The risk of not taking it is forfeiting your hard-earned money.

Where I have a problem is the black areas, as in reckless advice to deduct your groceries, deduct your clothes, deduct your vacations etc. 

PS. Of course, I'm all for hiring a professional, like you suggested. I have bills to pay. :)

Originally posted by @Brandon H. :

In general, when it comes to tax deductions:  Be smart, don't play in the grey areas - the risks just aren't worth it.  

I guess it depends on one's interpretation of a 'grey area', but I'm with @Michael Plaks on this one. The tax code, while enormously complex, does not provide black and white coverage for every situation. I have found taxpayers can be tremendously creative. They think of things the lawmakers never even dreamed of.  Resolving all 'grey areas' on terms favorable to the IRS would cost my clients much more than what is risked. Probably by a factor of a hundred.