Epic Real Estate Investing - Income Property and Your W2 Income | 399

Episode Date: May 29, 2018

Today on Tax Hacker Tuesday, Matt Theriault and Kent Savage answer a listener's question about income property and their W2 income. Learn why you should treat your investments like a business, how section 179 of the tax code can help you, and a special tip for physicians to save on taxes. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Did you know that up to 50% of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn't it about time you play on a level playing field with the wealthiest 1%? Now you can. Tim Berry, attorney at law, shares here each and every week current tactics and strategies that anyone can implement to hack the tax code. Protect your assets and keep what's rightfully yours.

It's time. for Tax Hacker Tuesday. Welcome to the Epic Real Estate Investing Show. It is Tax Hacker Tuesday with my attorney and friend, Mr. Tim. No, we got somebody else today. We got Mr. Kent Savage. He's part of Tim Berry's team over at Tax Hacker. So he's going to join us.

And on Mondays here at Epic, we show you new and creative ways as well as time-honored ways of making money using real estate. And on Tuesdays, we show you how to keep it. and today Kent Savage is here to join me to answer a question and show you how to keep it. All righty. So Kent, how are you, buddy? I'm doing great, Matt. How are you doing? Oh, living the dream. I know it's tax hacker Tuesday, but we're recording this on a Friday before a three-day weekend. Kent, tell us a little about yourself. Let's start there. Sure. I've been working with Tim for a little while now. I've been focusing on taxes and asset protection.

started in the corporate world and moved over to international, uh, international asset protection and decided I wanted to spend more time doing things that were a little more applicable to the everyday person. So, got it. That's why I'm here. Super.

Glad to have you. And, uh, I actually this yesterday, but I think we just need to have it on the record. Do you play any sports, Kent? You know, I, play well, not well, but I do play sports. A huge soccer fan, football fan, basketball, everything. I'm

I love it all. And I ask that question because his last name, Savage, would just look amazing on the back of a jersey. It does look pretty good. I'd be very envious of that player or afraid of that player, one or the other. All right, so. As far as if I play, it looks good. Good. All right, so I'm going to answer a question today. If you have a question for Tim or Kent or anybody here on the tax hacker team, you can go to taxhacker.com forward slash questions. Taxhacker.com forward slash questions. I think we'll have like five or six come in. So this is your opportunity to take advantage

and get some free advice and post it there and we'll answer it here live on the show. So today's question comes from, I'm going to do my best. Drewpad, Joshi. Hopefully I pronounce that correctly. Forgive me if I did not. I and my wife are both physicians

and getting W-2 salary income. Our income put us in 32% tax brackets. We have a primary home which is mortgaged and a rental home, which is paid off. What's the best tax strategy to reduce our tax liability or reduce our tax brackets without putting too much money into a 401k or IRA because we need liquid cash to pay off our student loans faster? We don't have an LLC or escort for the one rental property. We have since net income is only $3,000 per year.

Thanks. All right, Kent. Matt, this is a good question and it's a common one because people when they're starting out and they're, you know, you're doing investments, it's not necessarily that they're making a ton of money right away, especially if they're really busy with the normal W-2 job. And that's kind of what they want to be focusing on. So, but one of the things to remember,

and I think Tim has said this a few times on the podcast, one of the things to remember is that we want to treat our investments like a business. And even if you only have an investment, that's netting $3,000 a year, we want to be treating that as an investment. And what I mean by that is he said the questionnaire or the questioner said that they didn't have they didn't have an LLC or a corporation set up. One of the things that they could do is go ahead and set that LLC up. And let me actually tell you a little story, a real life story.

When I was just starting out, I had a W-2 job. I had a little side business. And my side business was in an LLC, but it only made $600 that year. And so, you know, really small income. We didn't really change my taxes from an income perspective, except for the fact that I was able to take $20,000 in deductions because I had that LLC set up. Now, so that's a huge thing. And if you have a, if you're in the 32% federal tax bracket,

I mean, lowering your income by $20,000, that's a significant savings right there. Sure. So where did the $600 business, if I can ask just, where did that, those $20,000 in the deductions come from? That's a good question. There was, I've got more. It was actually an educational deduction that I took. I spent some money trying to get some education in working that business. It was a fell business attempt for what it was, but I was still able to take that deduction. And so if you didn't have that in an LLC, you wouldn't have been able to take that deduction?

Well, it's the nice thing about the LLC is that it makes it, it's the easiest way to do this. because as you move forward, again, we want to treat this as a business. So there's a lot of deductions that you can take when you do have another LLC set up. Now, I want to just let me make a quick note here, Matt. We can't just set up an LLC and in perpetuity be taking losses year after year after year. The idea of investing and the idea of having a business is that we want to make some money. And the IRS knows that. So this is where actual tax planning comes in, right?

So that first year when I had that business, I was able to take that loss. I had a little bit of income, but I was able to take that loss. And going forward, again, there's other strategies that you can use to continue to get good treatment. But it's just, and another one, for example, is one that Tim has mentioned before on the podcast, and that's the Section 179 of the tax code, the expense election, where you can ride off equipment and personal property that you put into your business against your W-2 tax liabilities. And I know that he talks about that,

but I think that's when you guys were talking about creating the Airbnb empires out of global homes. So it's stuff like that. you can plan to do year after year, but having the LLC in place allows us to actually plan for that year after year. Got it. Okay, so in an LLC, and you've got W2 income, LLC income, those losses can be applied to your W2 salary income, right? Yes. That's what we're talking about. Okay, good. And understand that. And then how many years can you take a loss in your LLC before the government starts to look at you funny.

That's a good question. My understanding that it's usually about three, they, I mean, there's nothing against the law and having a loss, right? It's just that the IRS, if you keep taking a loss and you never have any profit, then they like to think that what you're doing is a hobby. Right. Instead of an actual investment, which doesn't necessarily. mean that's true, but that's how they like to look at it. So it just raises a red flag if you start

taking too many years of just straight losses. Got it. Yeah, we don't want flags with the IRS. No, we don't. Super. All righty. Yeah, anything else here? Or is that a complete answer? Oh, you know what? There's a couple other, you know, now that I think about it, there's one or two other little things that I'll say just specifically for this person's situation. One thing that that physicians might want to consider. And this is very, this might be a little more specific to physicians, but people can, but they can see if it would apply in their own job. And one of the things that you can do, especially in smaller clinics, I've actually had clients that have done this before, you can actually go to the clinic that you're working at. And sometimes if you're

at a bigger hospital, they're not as flexible. But you can actually go and see if the hospital will pay you as a 1099 instead of a W-2. And in that situation, you can actually set up your own LLC, have it taxed as a C-Corp or an S-Corp, and start taking additional deductions and other things by setting it up that way. That doesn't necessarily mean you're going to, a lot of times you can get a better tax treatment. But that's, that's something that you actually need to talk to a good tax attorney or CPA about and run the numbers before you go and do that. But that's another thing. Just being creative in seeing if there's any flexibility and how you're actually being paid, things like that. Right. And I've actually

heard that before for people working for really small businesses that just have a few employees and then, you know, and sometimes that's even a break to the to the employer as well, right? Right. Because the employer doesn't actually, so when generally with the W. the employer is paying half of your payroll taxes and you're paying the other half. So you can go to them and say, hey, pay me is a 1099. And they're not paying any payroll taxes when they're actually paying you. Right. Right. Right. Again, there's there's, there's even other things that they don't have to pay or take into account. But again, talk to a tax professional before you go ahead and tell your employer you want to switch how you're hired.

But it's, it can be an effective way. especially in these people's situation where, you know, there's a lot of other things that we could be riding off and doing if, you know, you know, mileage deductions and other things if they were, if they weren't paid as W to employees. Right, right. That'd be good for Los Angeles. Every commute here is at least an hour.

Right. It'd be nice to write that off. Okay, super. Well, thanks, Ken, for sitting in for Tim this week. I think he's in, he's a broad somewhere. and I think on an extended vacation. So you might be back next week. I'm not sure.

But you want to come back if he's not available? I would love to. This has been a lot of fun. Cool. All righty. Let's do that. If you haven't done so already, you can go to tax hacker.com,

download Tim's free book, how to take advantage of five loopholes and Trump's new tax plan. The mainstream media isn't sharing with you. And after you've done that, you'll have the opportunity to schedule some time with Tim or Kent. And either he or one of his team members will get on the phone with you for a short five, 10-minute call to assess your situation.

If there's a good fit there, they'll go ahead and they'll take the next step and schedule a tax action plan. And if there's not a good fit, they'll go ahead and they'll share some alternative resources to where a better fit for you might be able to be made. So either way, Tim and his team are committed that you are better off after that phone call than you were before. And that's just Tim's nature. All righty. So that's it for Kent, Tim, and myself. and we'll see you next week for another episode of Tax Hacker Tuesday on the Epic Real Estate Investing Show. That's it for today as we dream of a tax system that works just for you. But until then, you have Tim Berry.

See you next Tuesday for another episode of Tax Hacker Tuesday. You've been listening to Epic Real Estate Investing, the world's foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic Real Estate Investing with Matt Terrio. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.