Tax Season in July? Weird!

Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity—whether local, regional, or national—in order to finance government activities. In economics, taxes fall on whoever pays the burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business’s goods. Seems pretty straightforward.

Why do we have taxes?

To help fund public works and services—and to build and maintain the infrastructure used in a country—the government usually taxes its individual and corporate residents.

The tax collected is to be used for the betterment of the economy and all living in it. In the U.S. and many other countries in the world, taxes are applied to some form of money received by a taxpayer.

The money could be income earned from salary, capital gains from investment appreciation, dividends received as additional income, payment made for goods and services, etc.

In the United States, this function is performed by the Internal Revenue Service (IRS).

Like many nations, the United States has a progressive tax system, not a regressive one, through which a higher percentage of tax revenues are collected from high-income individuals or corporations rather than from low-income individual earners.

Taxes are imposed at federal, state, and local levels. Generally speaking, the federal government levies income, corporate and payroll taxes; the state levies sales taxes; and municipalities or other local governments levy property taxes.

This all seems pretty straightforward. How do some people end up paying less in taxes? One obvious way is that they earn less money. But that’s not what we are going for. We want to make a lot more money AND pay less in taxes, legally.

One of the best vehicles for paying less in taxes is real estate. Not the house you live in. Yes, there is a mortgage interest deduction, but there have been many governmental conversations about getting rid of that one, besides the house you live in doesn’t give you cash flow.

Owning rental real estate, whether passively or actively provides a significant tax benefit. There are quite a few ways to save on your tax burden through real estate ownership. A big one is depreciation expense.

Depreciation is a reduction in the value of an asset with the passage of time, due in particular to wear and tear. There are standard deduction tables that tell you exactly how much and how fast you can depreciate your property.

You can also depreciate some of the things in your property, appliances, heating and air conditioning units, etc. The reason this is a great deduction is that you may not have spent any money on these things in the year of the return.

That means that the depreciation is subtracted from the income that you made, giving less taxable income. You did nothing to make the property depreciate, it just happens by virtue of the fact that it is property. Another amazing thing is that our properties often appreciate in value. Become worth more over time.

In other words, the government allows real estate to be less valuable, on paper, depreciating, while in reality, it may be becoming more valuable.

Taxes are actually not difficult. The tax code is written to tell you what the government wants you to do, one of those things is to help supply housing. For doing that you are rewarded.

Whether you do it actively by owning rental property yourself or through syndication, real estate is one of the best ways to decrease your tax burden.

YOU know the best way to give your money a mission. The best way to leverage every dollar to improve communities and your bottom line. We do not need to leave it to the government to decide.

Here’s to giving your money a mission and making a difference!