Three Tax Strategies You Didn’t Know About to Save You Thousands
When was the last time your accountant brought you an idea that saved you thousands of dollars in taxes?
That was the question that pushed Travis Jennings, who has educated the wealthy on better techniques to improve their finances, investments, and taxes for over a decade, to launch an automated online platform to share the solutions of the top 1 percent with beginner investors. In our recent conversation, he provided three techniques to save thousands of dollars on this year’s taxes.
Technique #1 – Rent your house to your business
If you create a LLC, then by definition, you are a business owner. As a business owner, there are many different ways to decrease your tax bill. One well known example is deducting the square footage of your home office. However, what most investors don’t know is that they can rent their entire house for business events.
Travis said, “let’s say that I threw a pool party and I invited a friend of mine that was potentially going to become a client. Well, as long as we discuss business and we take notes, I get to rent my home to my business for that day.”
To determine how much in rent you can deduct, go to a site like Zillow.com, look up your homes estimated monthly rent, divide by 30, and that is how much you can write off for each event. For example, let’s say Zillow says your home could potentially be rented for $3,000 a month. That’s $100 per day. If you host a business event once a month, that’s a $1200 savings.
Travis said, “there’s some structure to that. You want to take notes. You want to have [meeting] minutes. You kind of want to briefly write down what you discussed that was business, and just in case one day you ever get audited, you’ll have some proof as to what you did.”
I host a monthly poker event with some friends and investors, so I plan on implementing this strategy immediately, and you should too!
Technique #2 – Hire your kids
Do you have kids? Put them to work and realize even more tax savings. Travis has three kids, and he puts all three to work at his home office. Once your kids turn seven, which is the age of Travis’s youngest, you can hire them.
Travis said, “you may have heard of this, but I’m going to give you a twist that’s even more fun. So what if we hired our kids at the 0% tax rate? What if we paid them $6,300 a year? Well, then effectively what we would be doing is shifting dollars off of my tax return and putting it onto their tax return. And if we’re paying them just enough to be in the 0% tax rate, if I’m in the 40% tax rate, I’ve just saved 40%. So on 3 kids at $6,300 a piece, I’ve just saved myself about $8,000 in taxes.”
Technique #3 – See if you have the right CPA
The biggest mistake a typical real estate investor makes from a tax standpoint is never upgrading accountants. “I would say that most investors – real estate included – don’t start off with the ten million dollar projects,” Travis said. “They build up to it. So then the accounting professional or your tax advisor is typically the advisor that you had in the beginning. I would say that most people don’t grow or they don’t reevaluate their trusted advisors enough. They just roll with what they’re comfortable with.”
The CPA that specializes in new development and a standard CPA, for example, have two completely different skill sets. If you have the wrong CPA for your niche, you could be missing out on huge tax savings.
A great way to determine if your CPA is the right fit, and if they are capable of getting you the most tax savings, Travis said to ask them “Can you tell me about one of the solutions in the last month or so that you implemented with a different client to save them a bunch of money in taxes?” He said, “if they stutter, if they seem unsure how to answer it, then they’re probably not doing a lot of proactive tax planning.”
Which of these three tax strategies will you implement? Leave you answer in the comments below.
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Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.