Entity Structure and Tax Strategies Tips for Real Estate Agents
Welcome back to the science flipping podcast. I’m your host, Justin Colby. And today we are going to talk about everyone’s favorite subject taxes. More importantly, we’re going to talk about how you actually keep more of the money you make than actually give it to the government. Uncle Sam loves taking your money, they built it just to take your money. However, what they have also done, if you’re smart enough, is they’ve actually created rules and created guidelines that people who have good accountants and good financial advice and tax strategy, actually, they give you loopholes, so you don’t have to pay taxes.
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So today, I want this episode to talk about that, keeping more of the money you make. Now, let’s start with one simple subject tax strategy. Now, for you listening to this podcast, you’re likely a real estate investor or are trying to get into the space of real estate investing. So I applaud you, I love it. Now you need to make sure you are talking to someone about your actual tax strategy. Now I use my accountant and bookkeeper to do my taxes. But when it comes to actual tax strategy entity setting up all of that I actually use a company called prime Corporate Services. So if you go to primecorporateservices/tsof, primecorporateservices/tsof, which stands for “The Science Of Flipping, they will know you heard my podcast, I’ll say it one more time for you guys. primecorporateservices.com/tsof, they will know that you heard my podcast, and they will treat you great. In fact, they’re gonna do a complimentary call with you. So that is the relationship I have with them. They are the company that I personally use to do my tax planning to set up certain entities in a structure that helps me benefit from all the loopholes or even more importantly, all of the given ways the IRS quite literally is setting me up to not pay any taxes. Lastly, the last time I should say primecorporateservices.com/tsof. Now, because you’re coming through me, they are going to give you a complimentary strategy call. In fact, if you do need any entities set up at all, they will actually do it at the cost, they’re not going to up charge you, all the cities and counties have their own cost to fill out the paperwork. So if you use them, which I highly encourage, because I do it, so if it’s good enough for me, it’s good enough for you, then they will not upcharge that. Now what I ultimately call them for and utilize them is again, setting up the proper entity structure based around the companies that I’m using, so that I can get the best tax write-off’s as possible. Now, one of my students in my elite coaching program actually asked me a question about how I pay myself and why I don’t seem to get as many tax write-offs is you would think now I do get a lot of tax write-offs. But the way I pay myself is I have an LLC that funnels to an S corp, and that S corp pays me a salary. Now I’m going to pay the IRS something in my active wholesaling business. So I want to make that very clear is because that’s active income. Wholesaling properties does not give me any tax write-offs at all, because quite literally, it is active income. So if I make a million dollars this year, in my LLC, I will basically pay myself in my S corp, every dollar of salary that I’m paying myself, actually we’ll go to the IRS, every dollar in salary will go to the IRS. Now, you might be thinking just like my student was thinking, Well, wait a minute, Justin, if there’s all these ways to strategize how to not have to pay taxes, why are you paying taxes in your wholesaling business? Well, I just told you guys this. And again, this is why I would tell you make sure you take prime up on their complimentary call totally complimentary because you’re coming through me because they will explain to you the different verticals and where you can actually get tax savings and tax write-offs. So when you wholesale a million dollars for the home. There’s no asset to depreciate. Well, there’s not really any write-offs. Now one thing that can be a write off is obviously your car Now depending upon how far you want to stretch it, you can say you use your car for 100% work use. For some people that’s accurate, you buy a couple cars, you take, let’s just say the Honda Prius, that’s the one you’re driving around town in a 100% of that car payment is going towards work, right? Because you’re viewing properties, you’re driving around meeting with sellers, the only time you’re driving that car is work, you also have expenses. But the reality is you don’t have the big tax write-offs that really, really save you huge in your income, especially when you’re making the level of income we make. Again, if I have a million dollars of income generated or revenue, I should say, and as long as I keep my expenses low, and I stay at a anywhere from a 30 to 40% margin there, then I’m gonna get taxed on that income because there’s just not enough tax write-offs to justify $300.000, $400,000 of income. That quite literally is going to be charged me right. I mean, my car is great, and I can write that off. But there’s just not enough right tax write-off meals, there won’t be enough unless you’re just, you know, spending money outlandishly, which, again, you might not want to do that because even though the IRS quite literally is backlogged with audits, you just don’t want your card to be pulled. right now, do I get a ton of tax write offs from my rental portfolio? Absolutely. Again, I use prime corporateservices.com/tsof set up my entities. So for example, I have my wholesaling entity, let’s just call it A and then I have right now I have 14 rentals, I want to acquire a lot more here. But right now the 14 rentals are under one other LLC, and I’m actually breaking that out. So I don’t have all 14 under one, I’m actually going to break it out. And I’m gonna have three or two others. So three total holding all of my holes. So I called the prime, they set me up with more LLCs, which based around how I want my taxes to flow, they gave me the proper tax strategy. I can tell you this, in a company or any business that has assets, such as rentals, you for sure should not be paying much if any taxes at all. You have the depreciation, you have the interest, you have insurance, you have all these categories that really are great right-offs for the income you’re making. And again, if you are paying taxes, I would really tell you that you need to be talking to prime about your tax strategy, are you doing it correctly, based around your goal? Now, let me revert back here, for those of you that are wholesalers that are flippers that are making a ton of active income, there are ways there really are ways that you can create a business that makes a ton of revenue seven figures or more, and have tax write-offs that are pretty pretty darn substantial. As I’ve mentioned, sometimes that means you need to spend a ton of money to get there why I caution people about trying to be overly tax write-off centric in the wholesaling and flipping business is because you might make a lot of money, but you may not make quite enough to get to the next level, which would be something like buying a plane, which could be a tax write-off. Again, that’s a huge, huge expense. And a lot of you are at that level. I mean, I would say the vast majority, I’m like 99.9% of the people in the flipping and wholesaling business aren’t there. So again, the easiest thing to do, because I am not an accountant. So this is not a, you know, full blown financial tax advice. I’m not licensed, I am telling you how I’ve structured it and how this company primecorporateservices.com/tsof has helped me. Right? And you need that. Even if you’re just getting started, you at least need to get your entities structured, right? You at least need some LLC, maybe an S corp, you need something even if you’re just getting started. But with all that said, it’s really important for you to keep more of the money you’re making. And that comes down to how you’re doing it. How are you structuring it, right? Where are you finding the tax write-offs and this is important because you don’t start your own business to go make $100,000 So you can get taxed in the same way an employee gets taxed making a hundred thousand dollars. People aren’t putting enough emphasis on this ability to keep more of the money you make and it’s because they don’t know the resource that people like myself. The people that are making a lot of money are actually using such as again prime I’m not trying to beat you up to the head with this. But the reality is they’ve helped me so greatly set up entities create my tax structure and give me like strategy to save if not completely stop paying taxes in certain entities in certain structures. There are a lot of ways that you can get tax write-offs. As long as you are structured correctly. I’ll give you one quick example. In my wholesaling and flipping business, the reason why I have an LLC that flows to an S Corp is really the LLC is the flow through, all the money goes in. And that flows into the Escort now how I pay myself, which is salary and distribution is really going to predicate how much money I make. So I save roughly save roughly 8% and self employment tax structuring that way. So let’s just use the argument that I would have been taxed 40%, because of my structuring of my entities, because of how I’ve laid that out, I now I’m actually getting taxed 32%. That’s a big savings when you’re talking about, you know, hundreds and hundreds and hundreds of thousands of dollars of income, I will love saving 8% on that level of income. So I really urge you guys to understand tax strategy to understand what how you want to set up your entity and entity structuring for the purpose of tax write-offs for the purpose of keeping more of the money you make. So I’ll say it one more time, primecorporateservices.com/tsof. That will give you the complimentary call that you can just talk about what you’re trying to do. Maybe you’re trying to just buy rentals, maybe you’re trying to buy short-term rentals, which is really a different type of business, right? And so you need to understand what you’re doing. You need to understand where the values are, you need to be structured the right way and ultimately keep more than money you have.
Hopefully this helps. Obviously, I just gave you the resource over and over and over again, about who I’m using to create entity structure tax planning. They helped me with everything from estate planning to building business credit. I mean, they literally helped me with everything. And so that is my resource prime corporateservices.com/tsof. That way they know you came through this podcast, this video. And if you’re not watching this on YouTube, go over to youtube.com/justincolby. Make sure you subscribe as I’m dropping heat over there. Otherwise, I will see you guys talk to you guys on the next episode. Peace