On recent tax day, day that brought some investors tears and others, happiness. Now it’s time for you to look back on 2015 & think how you can make your financial & tax position better for 2016. Being real estate business owner or investor adds noteworthy complexity to one’s tax condition and it is important to call to mind that reducing tax liability is key to investing & business success. Reducing taxes means more money in your pocket, high return on investment, and fast collection of wealth.

Those people having a day job is tough from a tax point of view, and the best strategy for those having a day job can implement is to evaluate how much money they owed or were refunded & decide how they should adjust their W-4 so that they owe or are refunded less in 2016.

According to a tax rule as long as an individual pay in 90% of his tax liability, he will not be penalized come April 15th. If he extends his returns and had paid at least 90% of tax liability, the individual will have further six months to come up with the remaining 10%.

There are many firms which work with clients to balance their W-4’s so that their clients owe around 5-8% of total tax liability on April 15th. So, throughout the year their clients would have paid in 92-95% of their total tax liability and the benefit you get with this strategy is that you have greater working capital in your pocket across the year, instead owing a small amount or getting a large refund at the end of year. Thus, having working capital throughout the year allows to retain a better investment strategy & get benefits from opportunities when they come.

Those people owning rental properties they should take a look at their 2015 returns and should determine whether their rentals generated taxable loss or income and after that they should consider their plans for 2016 and how many rentals they will be adding to their portfolio. If their rentals have generated taxable income, they should consider having a cost segregation study performed on one or all of their rentals in order to boost devaluation. They should understand their current tax bracket and how their tax bracket may modify in the future, and most importantly whether a cost segregation study makes sense at the moment. They may also focus on replacing & repairing worn out parts in 2016. Doing this will reduce the taxable rental income by writing off currently deductible expenses.

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If 2015 resulted in a passive loss, the first thing that needs to be determined is how much passive loss was deductible on the returns. The Passive Activity Loss rules direct how much passive loss can be written off on your returns. High earners mostly find that they cannot write any of their passive losses & mostly their losses are continuously carried forward year over year. If you are someone who had suspended passive losses i.e. those carried forward then, 2016 will most probably be a good year to sell properties with large built-in gains.


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