Tax Code as Your Financial Playbook

In a climate where taxes seem to perennially climb, interpreting the IRS code as a mere checklist of dues is an oversight. Rather, savvy taxpayers see it as a playbook, rich with strategies for those willing to engage proactively with their finances. Among the myriad avenues available, real estate stands out as a particularly robust method of tax optimization, especially when aligned with other financial instruments such as Health Savings Accounts (HSAs) and small business deductions.

Real estate investment isn't just about picking prime locations or timing the market; it can also be a powerful tax shelter. The magic lies in the dual advantages of deducting operational expenses and the depreciation of property. This isn’t mere accounting magic but a legitimate method endorsed by the tax code to encourage investment.

Here’s how it works: operational costs, including property management fees, maintenance, marketing, and even travel expenses related to the property management, may be deducted from your taxable income under certain requirements. More significantly, depreciation allows investors to reduce income on paper, reflecting the property's loss in value due to aging and wear, despite potential market appreciation. Over the span of 27.5 years for residential properties, this can add up to a substantial deduction.

However, the scope of tax efficiency extends beyond the realm of real estate. For individuals with high-deductible health plans, HSAs offer another fortuitous tax break. Contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are not taxed. It’s a triple tax advantage that can reduce one’s taxable income while providing a safety net for health-related expenditures.

For entrepreneurs, the tax code provides further benefits. Small business owners can deduct a portion of their home expenses if a part of their home is used regularly and exclusively for business purposes. This includes a percentage of utilities, home insurance, and even mortgage interest, transforming some personal overheads into business expenses.

Moreover, the deductions extend to various other business-related expenses, such as office supplies, travel costs, and even meals and entertainment under certain conditions. These deductions not only lower taxable income but also enhance the business’s bottom line through smart expense management.

The tax code can offer a litany of levers and pulleys that can be adjusted to not only mitigate the tax burden but also to encourage behaviors that fuel economic activity.

Critics argue that this complexity favors those with the resources to hire expert advice. While there is truth to this assertion, the fundamental mechanics of these deductions are accessible enough for individuals willing to invest the time and effort to learn. Free resources from the IRS, as well as affordable tax software, can help demystify these opportunities for the average taxpayer.

Before jumping headfirst into assuming you can take all these deductions there are also many requirements as to what is allowed to be written off. To determine if you are heading down the right path to save on taxes take the time to understand the tax code and have a conversation with your CPA as what may apply to your specific situation.

RICH FLANERY IS A CERTIFIED MORTGAGE PLANNING SPECIALIST AND AN INVESTMENT ADVISER REPRESENTATIVE. BRANCH LOCATION 600 S. SAINT VRAIN AVE #4, ESTES PARK, CO 80517. WWW.PEAKCAPITALMORTGAGE.COM PEAK CAPITAL MORTGAGE, LLC, 1045767 & 2347925, RICH FLANERY, 256117, PEAK CAPITAL MORTGAGE, LLC, CO-2347925, PEAK CAPITAL MORTGAGE, LLC, (970) 577-9200, CO-256117, WY-256117, WY-2347925 PEAK CAPITAL MORTGAGE, LLC, 970-577-9200, FL-2347925 FL-256117 SUBJECT TO BORROWER APPROVAL