[USER]

Less than two years ago we were bringing in an income of around $120k. This year we will be about $380k.

We have 6 kids, a couple rentals and haven’t had to worry a whole lot about reducing our taxable income.

I think we do this year- I reached out to our accountant (not even sure he will really be the resource we need), but wondering if you guys have resources where I can learn what I need to know, come up with options that may help.

Thinking about starting/buying a business, but no solid ideas.

[Kristin]

Definitely max out tax advantaged retirement accounts such as 401k or 403b.

[Dan]

I think you’d be well served to work with a financial or tax pro that’s very well versed in real estate taxation and strategy.

With rentals, are you considering whether a cost segregation study and taking bonus depreciation would be beneficial? If your rentals are generating taxable income that’s one strategy to reduce it until your passive losses run out.

This can lower your effective tax rate.

Another great strategy with real estate is if you’re willing and able to put in the work to qualify for real estate professional status where you can take your passive losses from real estate to reduce your W2 or other income.

The short term rental loophole (not a true loophole) is also an option.

But both these strategies require one of you to put in some material participation hours.

[Joe]

Make a property management business, even an S Corp if it makes sense.

Work the system lawfully and legally. Employ yourselves, have the business purchase your fuel and cover some vehicular expenses etc.

Employ the kids, deduct those costs etc.

Get creative but stay legal and law abiding.

Im throwing ideas out, but I think it’s time to talk to an expert on tax law etc.

Look up Toby Mathes on YouTube.

He has some great videos on how landlords can utilize tax laws to your benefit.

I only mention the property management idea as you already have the properties.

Buying a business to “lose money to save taxes as a write off” is a terribly idea.

[Cecile]

You don’t say how old you and your spouse are – if you’re 50 and over, are you also catch up contributions?

If you and your wife contribute to 401ks, that’s $61K off your taxable incomes

[Terrance]

as long as you spend less than you make, maximize your tax advantage vehicles, and have a solid investment plans like regularly investing in a low cost index fund, there’s no need to over complicate things.

As you add complexity through real estate and businesses, you will introduce more hands into the pot (financial planners, CPA, property manager, wealth planner, estate lawyers, etc).

One mental exercise you can do is to consider one day when you’re 90 years old and ready to pass on whatever empire you have built to your children, how would you go about it?

Maybe you would come to a similar conclusion as Warren Buffet who has been quoted to advise his wife to allocate 10% of her inheritance to short-term government bonds and 90% to a low-cost S&P 500 index fund after his passing.

[Author]

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