Tax

The worst thing an inexperienced or time strapped real estate investor can have is cash!

Every day, new investors come to us with similar problems. They are losing money on their rentals, they are being driven crazy by tenant, toilet and trash problems and they want out!

They saw “everyone” getting rich in real estate, so they decided they wanted in. They took a couple of courses, read a couple of books and they were ready, or so they thought, to buy rental properties for passive income.

You are paying too much income tax - and it’s nobody’s fault but your own! You do not have to wait for Congress to pass a tax cut bill. You can enact your own personal tax cut with careful tax planning.

Here is some tax planning basics:

* The difference between tax avoidance and tax evasion is $10,000 and five years in prison! Tax avoidance is the lawful and ethical use of accepted procedures to reduce your tax liability. Tax evasion is a willful misrepresentation or concealment of information. Despite growing public acceptance of cheating on tax returns, reckless tax evasion is a very dangerous matter. There are many legal ways to reduce your tax liability - too many to risk your future with tax fraud.

People do not generally think much about taxes, except during the annual tax season. For millions of Americans, it’s probably the most dreaded time of the year and most people mark it on their calendars along with holidays and birthdays. However, there is no joy associated with April 15th, the deadline for filing of tax returns.

Preparation of income tax returns is one job that requires concentration and time. It might seem a cumbersome and a tiring job, but it is extremely important.

They say death and taxes are the only two certain things in life. Alas, this wasn’t always the case. Well, at least for the income tax.

The History of Income Taxes

Our great nation came into existence in fits and starts. Following the revolt against the British, a federal government was elected and the fun began. This “fun” inevitably led to the situation where not everyone could agree on what the United States should stand for, much less what laws should be enacted. As a result, there was no federal income tax for nearly 100 years. Ah, the good ole days!

1812

The first attempt to impose an income tax on America occurred during the War of 1812. After more than two years of war, the federal government owed an unbelievable $100 million of debt. To pay for this, the government doubled the rates of its major source of revenue, customs duties on imports, which obstructed trade and ended up yielding less revenue than the previous lower rates.

And to think that the Revolution was started because of Tea Taxes in Boston?

The powers of Congress, and the limitations set upon those powers, are set forth in Article I of the United States Constitution. Section 8 specifies both the power to collect, “Taxes, Duties, Imposts and Excises,” and the requirement that, “Duties, Imposts and Excises shall be uniform throughout the United States.”

Instead of giving cash to charity at year-end you can donate stock or mutual fund shares that you have held for more than one year and which have increased in value, and save some money in the process.

You are able to claim a deduction as a charitable contribution on Schedule A for the full market price of the stock or mutual fund on the date you make the contribution. You do not have to report the increase in value as a capital gain on Schedule D.

Believe it or not, there are ways to convert taxable income
into non-taxable income, without any fear of an IRS audit.

Here’s one of my favorites. It’s been part of our
tax code for over 30 years, yet many still don’t take
advantage of it.

What am I talking about?

The IRA — Individual Retirement Account.

Now, before you say, “Oh, I know all about that one; what’s
so great about an IRA?”, give me 10 minutes to explain 3 new
benefits to the IRA rules that you may not realize.

A tax credit is a credit that reduces the amount of taxes you must pay the Federal Government. It can save you substantial money because, unlike a deduction, a tax credit reduces the amount of income subject to taxation. For example, if you purchased a more efficient water heater (AFUE 95), and a solar heating system, you might be able to reduce your taxable income by as much as $2,150

What qualifies for a tax credit?

Nothing gets people more riled up than a discussion of taxes, but what alternatives are there to the current system? The negative income tax is one such possibility.

Tax Alternatives: The Negative Income Tax

The current tax system in the United States is an unmitigated disaster. Nobody really denies this fact, one of the few issues that seem to unite republicans and democrats in our country. The tax code is so big, nobody has a grasp of it and that includes the IRS. While you and I may groan once a year when it is time to file our personal tax returns, larger corporations don’t have it much better. One well known corporation reported that they file the equivalent of one tax document with the IRS every 3 minutes! While the may or may not pay their share, the pure burden of filing taxes for them and us is crazy.