A few years back, real estate investors were excited to hear the IRS lowering their tax rates from 28% to 23%. They thought this meant they could get a piece of the pie without paying any more taxes. But things turned out quite differently for some folks, and since then, there has been an increase in travel-related expenses. That's why I have put together this article with tips about how to save on taxes and avoid unnecessary business travel costs and real estate expenses by scoping out your local government offices.

The longest flight for a long-haul trip is 12 hours or greater; shorter trips are categorized as short-haul.

The IRS has other taxes that real estate investors need to be aware of, as well. In addition to your income taxes and self-employment taxes, you may also be paying a capital gains tax on your real estate investments. The first $250,000 of capital gains is taxable at 15%, with the remainder being taxed at 20%. Though this may seem like a small amount, if you invest in several properties over the years and flip them, you’re likely to pay more than the minimum.

If you want to avoid paying more than the minimum for sure, take all necessary steps to protect yourself from tax fraud. One way to do this is by using a 1031 tax Exchange. With 1031, you can defer paying taxes on the gains you make when selling your investment property, as long as you use the property for at least 2 years before selling it.

What is a 1031 Exchange?

A 1031 Exchange is similar to a normal transaction in that it involves two parties. But because of tax benefits and differences between state and federal tax codes, real estate investors have special ways to utilize this process. Visit IRS's Forms 1040 Instructions, or contact us today for more information about how 1031 will help you protect yourself from unexpected taxes.

Besides making sure you’re not paying more than the minimum, you also want to make sure you’re getting all possible deductions. There are two types of deductions, above-the-line and itemized. Above-the-line deductions refer to the deductions taken on your tax return that don’t require a separate schedule or form. These are relatively simple and straightforward. The other category of tax deduction is itemized, and it requires additional forms and schedules for documentation purposes, making it more complicated for the average real estate investor. To learn more about them, visit this IRS Publication 529.

What are above-the-line deductions? Below are common examples of these deductions.

You may be able to deduct other expenses that are related to your home or place of business, such as home office space improvements, advertising expenses, and some business-related travel costs and entertainment. You can also deduct some out-of-pocket medical expenses you have on the list provided by the IRS. The easiest way to do this is by claiming medical deductions, which is done through Form 1040 Schedule A. For more information about how to claim medical deductions, visit this IRS Publication 529.

Compensation paid to employees, including yourself; Wages and salaries; Tips reported to you by employees.

Payments made to your corporation, partnership, or sole proprietorship; Properly allocable deductions from partnerships and S corporations.

Rent payments you make to yourself for the business use of any part of your home; Rent payments made under a long-term lease.

Travel expenses that are reimbursed by the employer are excluded from wages subject to income tax. If you pay for any travel costs out-of-pocket, you may be able to deduct the expenses if they would otherwise be deductible if reimbursed by an employer. See Publication 529 for more information.

What are the itemized deductions? Below are common examples of these deductions:

Medical expenses that aren’t reimbursed by your insurance; Tax preparation fees; Interest on your personal residence, but there are limits to how much you can deduct; Home mortgage interest payments (this applies after you have lived in your home for at least two years); State and local income or sales taxes that are imposed on property, or on the purchase of goods or services where no business tax is levied by the seller.

If you’re a real estate investor, you may also be able to deduct your business travel expenses such as airfare, car rental, and meals, if the type of trip is related to your business and you can prove it. To learn more about this process, visit this IRS Publication 530.

Why is it important to “shop” for tax savings?

As an investor, you want to keep track of your expenditures so that when you get paid by the tenant in a year, or when you receive a check from the seller in year two of a property purchase, there are no surprises. If any costs are not deductible this year, next year will be different.

How can I save on taxes by shopping around?

You should be shopping around when it comes to local government offices, and you should be looking at your tax returns to see what you spend for business travel. Compare current prices with previous ones in order to get the best deals and avoid getting scammed. And if you want to know your options for medical and dental expenses, as well as other situations where you can deduct what you’ve spent on yourself, take a look at this IRS Publication 529.

When are businesses allowed to deduct their travel expenses?

There are some specific situations where business owners can deduct their travel costs from their business income tax returns. Getting a detailed explanation of these situations is quite simple. Visit this IRS Publication 463 for more information.

How can I prepare for tax season?

There are always surprises with taxes, especially if you don’t have a plan in place before the end of the year. Start by getting organized and keeping track of your receipts and documents. Build a good relationship with your tax advisor so you know that when it comes to taxes, he or she will have answers to any questions that may arise during negotiations or audits with the IRS. If you want more detailed tips and help to prepare your taxes, visit this IRS Publication 334.

What types of travel expenses are deductible?

If you are a business owner, you may be able to deduct certain expenses that are related to work trips; meals and lodging for yourself and any employees; local transportation; shipping expenses, long-distance phone calls, internet connection costs, fax machine usage, and other similar costs. The IRS has a strict set of rules regarding these deductions, so always perform a thorough check before making claims on your tax return. If you’re in need of more information about real estate travel deductions, visit this IRS Publication 463.

How do I run a profitable real estate business?

Real estate can be profitable in many ways, some of them not related to fancy marketing and sophisticated property management techniques. With good planning, a contract with the right tenant, and careful investments, even an older property can provide you with valuable income and cash flow. Learn more about real estate expenses and investing by visiting this website.

What are some tips for managing properties?

By choosing the right tenants to occupy your properties, you can create sources of income while keeping your properties maintained and in good repair. For more information about this process, visit this publication from the IRS.

What are the advantages of hiring a property manager?

Just like hiring a lawyer to handle your legal issues, you can hire a professional property manager to take care of tenant relations, rent collection, and repairs – leaving you with more time to focus on other aspects of your business. Visit this website for additional details about choosing a real estate property manager that’s right for you.

When should I get insurance?

In any given year, real estate investors may want to purchase insurance policies that will protect their properties from every possible risk. These policies are known as landlords’ insurance, and they can be purchased on an individual basis, or as part of a group policy. Visit this website to learn more about choosing the best insurance for your situation.

What is the difference between a landlord and tenant insurance policy?

There are basically two types of policies available: landlord policies provide coverage for tenants or third parties. Tenant policies cover only the structure, any improvements to it, and any personal property owned by the tenant, while landlord policies also provide coverage for theft by tenants or even vandalism that occurs on their watch. To learn more about these two types of policies, visit this website.

How much should I spend on rent?

As an investor, it is a good idea to calculate the amount of rent that you can charge from your tenants. This can be done by calculating the potential return on any given property based on market conditions and other factors, and then determining how much of this potential money your tenants would be willing to pay in rent. You should consider including up-front costs as well, such as tenant screening and application fees, along with markup for repairs and maintenance. For further details about evaluating rents, visit this website.

What are some of the risks associated with rental properties?

There are many risks that come with owning rental properties. It is important to protect yourself with proper insurance in order to avoid potential losses. Always be aware of certain factors that can lead to a decrease in your property’s value.

FAQs on real estate expenses and real estate business

How do I decide on the right tenant?

When you are looking for tenants, you need to think about a number of factors. One of these factors is the tenant's financial capacity – make sure you ask for a copy of the tenant's credit report and don’t be afraid to ask about certain aspects of his or her personal history: previous evictions, lawsuits, bankruptcies, and other situations where credit was an issue.

How can I save money on taxes?

There are many ways to save money during the tax season, so visit this website for more details. Here are several ideas: If you receive capital gains from your real estate investments, make sure to include those gains in your tax filings. Review IRS Publication 550 for more information about how to do this correctly. By completing forms and returning them to the IRS on time, you can reduce your overall tax bill the next year. If you have solid documentation and receipts of expenses for any deductions made, keep them with your business records so they can be referred to when it comes time to prepare taxes for the next year.

For more information, you can visit Calculate investment property return without a spreadsheet.