Jacksonville CPA | Helping Those Investors
Hello everyone and welcome to the segment. Uh, my name is Brandon Mcelroy and I’m the president had been Neva, Jacksonville based tax and accounting and consulting firm. Thank you for listening. And previous segment, we talked about ways to save on taxes and we’re going to continue that conversation in this segment. I’m, like I said before, uh, there becomes a time where you have to pay the man. Okay. That may have been Uncle Sam. So, um, there are a few what’s called listed transactions by the irs. Um, you know, they’re very risky transactions that I’m, some Jacksonville CPAS will mark it, but, uh, I do not like to operate in that realm. I’d much rather not get in trouble with the irs. And if you don’t do one of these transactions correctly, you can be subject to fines in the six figures so much. Rather just stick with the traditional tried and true methods of tax savings. So we talked about retirement plans, four one ks, Iras you talked about correctly, structuring your health insurance, uh, making sure you have an Hsa if you qualify for that, putting money into that and getting a tax deduction, and then using that money on qualified medical expenses. It’s a beautiful thing.
Now, let’s talk about ways to save taxes. If you’re a real estate investor, okay. Many of you probably are familiar with the 10:31 exchange, a mini Jacksonville CPAS will know this transaction, but I not many Jacksonville CPA that I know will, will guide you through this process like we will. So what do you not do? The 10, 31 in house, but we refer them out to another source, but we will work hand in hand with the third party and you to make sure that you get the tax savings you need. So let’s go to the 10:31 exchange. Uh, we just had a client who went through and did one of these, an apartment building, small apartment building. Uh, so the property for 900,000 and change and so did he didn’t want to pay the capital gains,
he, that, that was quite a large sum, he could, Jacksonville CPA he wanted to sell the, the apartment complex and reinvest that money into more real estate. So if, if that is your goal now, if you want to have another client who was selling some real estate and she does not want to get into more real estate, so she’s just going to have to pay that capital gains tax. And now the capital gains tax, if you’re under 400,000 married filing joint, it’s going to be 15 percent if it’s long term. And if you go for high income earners, it’s 20 percent. So I’m, that’s not too outrageous. But uh, definitely if you don’t have to pay, you don’t want to. Okay. So basically what the 10, 31 exchange allows you to do is to harvest the, the profits from one property and investment to another property without having to pay taxes, capital gains tax. Now this is not a, an exemption or an exclusion, but it’s basically a difference of the tax. So whenever you do a 10, 31 exchange, if you sell the property that you have reinvested into, and if you do not do another 10, 31 exchange, then you will have to pay the capital gains tax at that time. Um, so
a couple of things about the 10, 31 exchange, you have to go into a greater or equal piece of property or pieces of property. You have to be like kind. So you can’t go from real estate to airplanes. Uh, so you know, you have to reinvest in real estate. Okay? So, and it has to be, you can’t, for instance, go from a $900,000 property, two or $300,000 property because you’re going to have to pay tax, excuse me, you have to pay tax on that 600,000 and uh, one thing to consider and a 10, 31 exchange. If you have a mortgage on the property you’re selling, for instance. rough numbers in the transaction. Now, if you, if your Jacksonville CPA does not walk you through these transactions and hold your hand and make sure that, uh, you, you have your interests met, then give them an eva call. So if you have debt on a piece of property, let’s just say your debt on this piece of property is 400,000, okay? Um, and then you go, you sell this property for 900,000, right? So your, your cash out will be $500, okay? $900 minus 400 of repayment of loan. Well, if you do a 10:31 exchange, you have to either swap the debt that you have on the property you’re selling into the new property or swap that debt for cash. So for instance, on this $900,000 property, you sell it, you pay off $400,000 of debt, you have $500,000 worth of cash. So you buy a new piece of property that’s worth a million. You have to invest all of the cash, all of the 500,000 as well as either $400,000 worth of debt to secure a new mortgage on the property or you’re reinvesting into, or you can swap that if you have 400 grand worth of cash laying around, you can put that into the property and just have it free and clear. So, uh, I know there are a Jacksonville, Jacksonville CPA who is not aware of this, um, and just make sure that you, uh, if you’re going to use this strategy, you hire somebody that knows what they’re doing because if you don’t do it right, it could make the whole transaction a taxable.
And we want to try to avoid that if we can. So, um, 10, 31 exchange, we’ll go more into more detail later on that one. So we covered a retirement plans. We covered HSA is health insurance, um, 10, 31 exchanges. Now let’s talk about something that a most Jacksonville cpas will think of when it comes to tax planning and tax savings. And that’s the amount of salary that you pay yourself. Um, and this is going to affect escorp small business owners, which the majority of my clients are, so the irs will audit you if you don’t pay enough of a salary to an officer employee. However, I have seen a few cases, actually several cases where the s corp owner, officer slash employee is paying themselves way too much salary so they’re paying a more self employment tax and they should and in some cases, and for instance, I just had a client who was paying himself way too much in salary and as it relates to the new tax, all he was actually taking his s corporation into a loss situation because of the salary he was paying himself, which means that he’s not going to be eligible for the qualified business income deduction available in 2018.
Um, and so we reduce his salary, Jacksonville CPA still something reasonable. But, uh, he then creates profit in his escort, regenerates that 20 percent qualified business income deduction and he’s paying themselves less, uh, or he’s paying less self employment tax. So a when, when I think just a simple conversation, a little planning tip, a saved him minimum five grand, probably more like 10 grand. So, um, if you’re Jacksonville CPA is not saving you five to $10,000 in five to 10 minutes, then you need to give Mineva a call. Thanks.