Finding a way to put your hard-earned money to work is no easy process. There are a number of different investment opportunities on the market, which is why you need to do your homework before choosing one. One of the best ways to generate a long-term stream of steady income is by investing in real estate.
Over 28 million Americans classify themselves as residential real estate investors. One of the main hurdles you will need to get over when trying to have success as a real estate investor is reducing your yearly tax bill. Generally, hiring an Enrolled Agent with lots of real estate experience is vital when trying to avoid tax problems.
Here are some of the tax mistakes you need to avoid as a real estate investor.
Tracking Your Expenses is Vital
If you are buying older properties and remodeling them to flip later on, you will probably spend a lot of money. Spending your own money to make upgrades to real estate investments is normal. However, you need to become familiar with how to adequately track these expenses. Most newcomers to the world of real estate investing fail to realize these expenses are deductible.
Rather than trying to track these expenses on your own, you need to work with an accountant. These professionals will be able to keep track of the expenses and help you figure out how to get the maximum deduction amount for them. Ignoring the need for this professional help will lead to lots of costly mistakes being made.
The Home Office Deduction
Some new real estate investors think that the only way to get the maximum amount of deductions for their new venture is by claiming the home office deduction. In reality, a number of deductions for things like travel expenses, money paid to contract workers and property improvements can still be deducted without the home office claim.
Claiming a home office deduction when you don’t actually have a dedicated works pace in place in your home is a bad idea. If you are audited and the IRS finds this information out, you will owe a lot of penalties and back taxes. This is why erring on the side of caution is such a good idea.
General Expenses Need to Be Deducted
Figuring out what the IRS allows you to deduct for your real estate investments is tricky. Most new investors don’t realize that things like management fees, property taxes and even mortgage interest can be deducted from the amount of taxes they owe.
Ignoring these deductions will lead to you pay for more than you need to in taxes. If you have limited experience when it comes to real estate investing and tax preparation, seeking out professional help is your best bet.
Looking For a Tax Professional?
Are you tired of dreading tax time each year? If so, now is the time to contact the team at Alliance Financial & Income Tax. Our goal is to provide real estate investors with the tax strategy planning they need.