Five Ways Your Real Estate Company Can Save on Taxes
Real estate, like any other type of business, requires more profits than investments for it to be successful. Since there are over 2 million real estate agents in the United States, your company should stand out for you to close an increased number of deals. Taxation reduces the available funds for investment in your business, and you thus need to adopt some techniques that allow you to pay less tax. Below are some of the tips that can enable you to lower your taxable income and put more money into growing your real estate company.
- Hold properties for more than one year
If you sell some property within the first year of owning it, your revenue gets the regular tax rate. Flipping several properties in a single year can lead to extra taxes that reduce your ability to make additional investments. You can evade all the trouble by keeping the properties for more than one year before putting them up for sale. Additionally, you get the opportunity to earn from appreciation and higher future prices.
- Have a home office
You can make use of tax deduction by setting up an office in your home. You don’t need a lot of resources to get started. A typical office package which includes a table, seat and some few tools is good to go. However, the office needs to be an actual room and not a spot in your bedroom or some other family room. Be sure to use the room for that purpose so that you can avoid questioning by the Internal Revenue Service (IRS).
- Real estate depreciation
This aspect is useful for ensuring that your taxable income is on the lower side. If you own a rental property, you can use depreciation to deduct the expenses of purchasing and improving a property. The tax deduction occurs as soon as you place the property in service. Only the building’s value can depreciate since land cannot wear out. The approach of renting out a piece of property before selling is also essential for providing a reliable income source with tax benefits. You can lower your taxable income if you deduct your rental expenses from the revenue which the rental property generates.
- Improvements and maintenance
Improving and maintaining your property are some of the best ways to acquire deductions. Keep in mind that you don’t have to initiate any costly repairs or upgrades. You can fix a door lock or replace a broken window pane to lower your taxes. Maintenance practices like trimming the fence, regular cleaning and mowing the yard are also deductible.
- Keep track of your tax deductions
Be sure to track all your tax deductions so that you can easily claim your benefits during taxation. Store all the receipts so that you can show them to the authorities when needed. Thus, you can stay free of wrongly-imposed tax charges in the future. In tax evasion and avoidance cases, lawyers also require documents to support their say in the courts of law. Only keep a paper trail that is relevant to the current condition of your company to avoid clutter and thus confusions.
Summary
Real estate is a good investment that has tax breaks which allow you to keep more profits. You can miss such opportunities if you don’t focus your energy on lowering your taxable income. Once you are aware of the tax deductions that are at your disposal, you can easily take advantage of them to evade preventable taxes. There is no more natural way to take ownership of your finances than having low taxable income.