This document provides an overview of 10 key tax strategies for real estate investors: 1. Failing to properly plan taxes can be costly. Proper planning through deductions, credits, and income shifting can save significant taxes. 2. Business owners should avoid "audit paranoia" and carefully document expenses. 3. Missing depreciation deductions is a common mistake, especially for improvements, components, and personal property. 4. Distinguishing between repairs and improvements is important for deducting costs. 5. Investors enjoy tax benefits like depreciation, while dealers face self-employment taxes and ordinary income. 6. Employing family members can generate tax savings through deductions and reduced payroll taxes.

1. Tax Strategies
for Real Estate Investors
Sonu Shukla CPA, CFP
7380 W. Sand Lake Rd Ste 500
Orlando FL 32819

2. #1: Failing to Plan
“There is nothing wrong with a
strategy to avoid the payment of
taxes. The Internal Revenue Code
doesn’t prevent that.”
William H. Rehnquist

3. Why Tax Planning?
1. Key to financial defense
2. Guarantee results

4. Taxable Income

5. Adjustments to Income

6. Deductions/Exemptions
 Add Taxable Income
 minus Adjustments to Income
• minus
Deductions/Exemptions
 times Tax Bracket
 minus Tax Credits
 Medical/dental
 State/local taxes
 Foreign taxes
 Interest
 Casualty/theft losses
 Charitable gifts
 Miscellaneous itemized
deductions

7. Tax Brackets
 Add Taxable Income
 minus Adjustments to Income
 minus Deductions
• times Tax Bracket
 minus Tax Credits
Rate Single Joint
10% 0 0
15% 9,076 18,151
25% 36,901 73,8011
28% 89,351 148,851
33% 186,351 226,851
35% 405,101 405,101
39.6% 406,751 457,601
Tax Brackets (2015)
Rate Single Joint
10% 0 0
15% 9,226 18,451
25% 37,451 74,901
28% 90,751 151,201
33% 189,301 230,451
35% 411,501 411,501
39.6% 413,201 464,851

8. Tax Credits

9. Two Kinds of Dollars
Pre-Tax Dollars
After-Tax Dollars

10. Keys to Cutting Tax
1. Earn as much nontaxable income as possible
2. Make the most of adjustments/deductions/credits
3. Shift income to later years if lower-brackets are
anticipated
“You lose every time you spend after-tax dollars
that could have been pre-tax dollars.”

11. #2: “Audit Paranoia”

12. #3: Missing Depreciation

Land
Not depreciable
Improvements
27.5 – 39 years
Property

13. Break out Land Improvements

Land
None
Improvements
15 years
Land
None
Components
27.5 years
Personal Property
5 years
Improvements
27.5 – 39 years
Property

14. Break out Personal Property

Land
None
Improvements
15 years
Land
None
Components
27.5 years
Personal Property
5 years
Improvements
27.5 – 39 years
Property

15. Personal Property Examples
Cabinets Security System
Countertops Signage
Carpeting Stovetops
Dishwasher Supp. Power
Microwave Telephone
Oven/Range Walls/Partitions
PA/Sound Washer/Dryer
Refrigerator Window Treats.

16. #4: Repairs vs. Improvements
Repairs Improvements
•Deductible now •Depreciable over time
•Keep property in good
operating condition
•Adapt property to new use
•Don’t add value •Add value to property
•Don’t prolong property use •Prolong property use
 Paint
 Plaster
 Repair broken windows
 Fix gutters, floors, leaks
 Room addition
 Upgrade appliances
 Landscaping
 Replace components

17. #5: Investors vs. Dealers
Investors Dealer
•Buy as long-term
investment
•Buy with intent to resell in
ordinary course of business
•Avoid self-employment tax •Pay self-employment tax
•Depreciation deductions •No depreciation deductions
•Capital gains •Ordinary income
•1031 Exchange •No 1031 exchange

18. Sole Proprietorship
Report net
income on
Schedule C
Pay Self-
employment tax
up to 15.3% on
income
Pay income
tax on net
income

19. S-Corporation
Split proceeds
into “salary”
and “income”
Pay FICA up to
15.3% on salary
Avoid FICA/SE
tax on income
Salary Income
Pay income
tax on salary
and income

20. Employment Tax Comparison
S-Corp FICA
Salary $40,000
FICA $6,120
Net $73,880
Proprietorship SE
Income $80,000
SE Tax $11,304
Net $68,696
S-Corp Saves
$5,184
($73,880-$68,696)

21. #6: Missing Family Employment
 Children age 7+
 First $6,300 tax-free
 Next $9,225 taxed at 10%
 “Reasonable” wages
 Written job description, timesheet, check
 Account in child’s name
 FICA/FUTA savings

22. #6: Missing Family Employment
 Children age 7+
 First $6,300 tax-free
 Next $9,225 taxed at 10%
 “Reasonable” wages
 Written job description, timesheet, check
 Account in child’s name
 FICA/FUTA savings

23. #7: Missing Medical Benefits

24. “Employee” Benefit Plan
Business Entity How to Qualify
Proprietorship Hire Spouse
Partnership Hire Spouse
(if <5% owner)
S-Corporation >2% Shareholders
ineligible
C-Corporation Hire Self

25. The “Fine Print”
Nondiscrimination:
 Must cover all eligible
employees
 However, you can
exclude:
– Under age 25
– less than 35 hours/week
– less than 9 months/year
– less than 3 years service
 Controlled group rules
 Affiliated service
groups

26. The Benefit
 Reimburse medical expenses incurred for:
– self
– spouse
– dependents
 Not subject to 10% floor
 Avoid self-employment tax
 Supplement spouse’s coverage

27. Eligible Expenses
 Major medical, LTC, Medicare, “Medigap”
 Co-pays, deductibles, prescriptions
 Dental, vision, and chiropractic
 Braces, LASIK, fertility, special schools
 OTC medications (by prescription)

28. The “Paperwork”
 Written plan document
 Benefits are “reasonable compensation”
 Verify bona fide employment
 Document payments
 Certification
 PCORI fee

29. Health Savings Account
1. “High deductible health plan”
- $1,300+ deductible (individual coverage)
- $2,600+ deductible (family coverage)
Plus
2. Tax-deductible “Health Savings Account”
- Contribute & deduct up to $3,350/$6,650 per year
- Account grows tax-free
- Tax-free withdrawals for qualified expenses

30. #8: Missing Car/Truck Expenses
AAA Driving Costs Survey (2014)
Vehicle Cents/Mile
Small Sedan 46.4
Medium Sedan 58.9
Large Sedan 72.2
4WD SUV 73.6
Minivan 65.0
Figures assume 15,000 miles/year; $3.28/gallon gas

31. #9: Missing Meals/Entertainment
 Bona fide business discussion
– Buyers & sellers
– Tenants
– Referral sources
– Other colleagues
 50% of most expenses
 Home entertainment
 Associated entertainment

32. #9: Missing Meals/Entertainment
 How much?
 When?
 Where?
 Business purpose?
 Business relationship?

33. #10: Missing Tax Coaching Service
 True Tax Planning
 Written Tax Plan
– Family, Home, and Job
– Business
– Investments
 Review Returns