Income Property and Your W2 Income | 399

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income property

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.

income property

What You Will Learn About Income Property and Your W2 Income:

  • The answer to a listener’s question
  • Why you should treat your investments like a business
  • How section 179 of the tax code can help you
  • How many years you can take a loss in your LLC before the government starts to look at you funny
  • A special tip for physicians to save on taxes

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Transcript:

Speaker 1: This is Theriault 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.

Matt Theriault: Welcome to the Epic Real Estate Investing Show. It is Tax Hacker Tuesday with my attorney and friend, Mr. Tim … Nope, we’ve got somebody else today. We’ve got Mr. Kent Savage. He’s part of Tim Berry’s team over at Tax Hacker. So he’s gonna join us.

On Monday’s here at Epic we show you new and creative ways as well as time honor ways of making money using real estate. On Tuesday’s 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. Alrighty. So Kent, how are you, buddy?

Kent Savage: I’m doing great Matt. How you doing?

Matt: Well, 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.

Kent: 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 asset protection and decided I wanna to spend more time doing things that were a little more applicable to the every day person.

Matt: Got. It.

Kent: That’s why I’m here.

Matt: Super. Glad to have you. I asked you this yesterday, but I think we just need to have it on the record. Do you play any sports Kent?

Kent: You know, I do play … Well, not well, but I do play sports.

Matt: Got it.

Kent: I’m a huge soccer fan, football fan, basketball, everything. Love it all.

Matt: I ask that question because his last name, Savage, would just look amazing on the back of a jersey.

Kent: It does look pretty good.

Matt: I’d be pretty envious of that player or afraid of that player, one or the other. Alrighty-

Kent: Regardless of how I play it looks good.

Matt: Good. All right. So, gonna 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/questions. Taxhacker.com/questions.

I think we only had 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 gonna do my best … [Drupad Joeshi 00:02:52]

Hopefully, I pronounced that correctly. Forgive me if I did not.

I and my wife are both physicians and getting W2 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 an S-Corp for the one rental property we have since net income is only $3000 per year. Thanks. Alright Kent.

Kent: This is a good question and it’s a common one because … People when they’re starting out and 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 a normal W2 job and that’s what they want to be focusing on.

Matt: Mm-hmm (affirmative)-

Kent: 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.

Matt: Mm-hmm (affirmative)

Kent: Even if you only have an investment that’s netting $3000 a year, you want to be treating that as an investment. What I mean by that is … the questioner said that 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 real life story. When I was just starting out, I had a W2 job. I had a little side business and my side business was in an LLC, but it only made $600 that year. You know, really small income.

Matt: Mm-hmm (affirmative)

Kent: It 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.

Matt: Mm-hmm (affirmative)

Kent: So that’s a huge thing and if you’re in the 32% federal tax bracket, lowering your income by $20,000, that’s a significant savings right there.

Matt: Sure. So the $600 business, if I can ask … Where did those $20,000 in deductions come from?

Kent: That’s a good question.

Matt: I’ve got more.

Kent: It was actually an educational deduction that I took. I spent some money trying to get some education in working that business.

Matt: Mm-hmm (affirmative)

Kent: It was a failed business attempt for what it was but-

Matt: Got it.

Kent: I was still able to take that deduction.

Matt: So if you didn’t have that in an LLC, you wouldn’t have been able to take that deduction?

Kent: The nice thing about the LLC is that, 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 wanna just … Let me make a quick note here, Matt.

Matt: Mm-hmm (affirmative)

Kent: We can’t just set up an LLC and in perpetuity be taking losses year, after year, after year.

Matt: Mm-hmm (affirmative)

Kent: The idea of investing and the idea of having a business is that we wanna make some money and the IRS knows that. 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. Going forward … Again, there’s other strategies that you can use to continue to get good treatment.

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 write off equipment and personal property that you put into your business, against your W2 tax liabilities. I know that he talked about that … I think that’s when you guys were talking about creating the Airbnb empires out of mobile homes.

Matt: Right.

Kent: So it’s stuff like that, 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.

Matt: Got it. Okay. In an LLC and you’ve got W2 income, LLC income. Those losses can be applied to your W2 salary income right?

Kent: Yes.

Matt: That’s what we’re talking about? Okay. Good. Understand that. How many years can you take a loss in your LLC before the government starts to look at you funny?

Kent: That’s a good question. My understanding, it’s usually about three.

Matt: Mm-hmm (affirmative)

Kent: I mean, there’s nothing against the law in 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.

Matt: Right.

Kent: 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.

Matt: Got it. Yeah. We don’t want flags with the IRS.

Kent: No, we don’t.

Matt: Super. Alrighty. Yeah, anything else here or is that a complete answer?

Kent: Oh, you know what. There’s a couple other … 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 physicians might want to consider, and this is very … This might be a little more specific to physicians but people can … they can see if it would apply in their own job.

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 W2.

Matt: Mm-hmm (affirmative)

Kent: 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 in other things by setting it up that way. That doesn’t necessarily mean you’re gonna … A lot of times you can get a better tax treatment, but that’s something 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 and seeing if there’s any flexibility in how you’re actually being paid. Things like that.

Matt: Right, and I’ve actually heard that before. For people working for really small businesses that just have a few employees and sometimes that’s even a break to the employer as well right?

Kent: Right, because the employer doesn’t actually … Generally with a W2, the employer’s paying half of your payroll taxes and you’re paying the other half.

Matt: Mm-hmm (affirmative)

Kent: So you can go to them and say, “Hey, pay me as a 1099.” They’re not paying any payroll taxes when they’re actually paying you.

Matt: Right. Right.

Kent: Again, 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 that you wanna switch [inaudible 00:10:46] how you’re paid but-

Matt: Right.

Kent: It can be an effective way, especially in these people’s situation, where there’s a lot of other things we could be writing off and doing if … You know, mileage deductions and other things if they weren’t paid as W2 employees.

Matt: Right. Right. That’d be good for Los Angeles. Every Complete Care is at least an hour one way.

Kent: Right.

Matt: It would be nice to write that off. Okay. Super. Well, thanks Kent for sitting in for Tim this week. I think he’s in … He’s abroad somewhere. I think on an extended vacation so you might be back next week. I’m not sure. Do you wanna come back if he’s not available?

Kent: would love to. This has been a lot of fun.

Matt: Cool. Alrighty. Let’s do that. If you haven’t done so already you can go to taxhacker.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.”

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 to ten minute call to access 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.

Either way, Tim and his team are committed that you are better off after that phone call then you were before. That’s just Tim’s nature. Alrighty. So that’s it for Kent, Tim, and myself. We’ll see you next week for another episode of Tax Hacker Tuesday on the Epic Real Estate Investing Show.

Speaker 1: 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.