Your CPA should be able to help to steer you in the right direction when it comes to deciding how many properties you are going to sell and how many you are going to keep, and in what entities you are going to keep them. This will depend a lot on what your personal financial situation is and what your goals are going forward. It will also depend for example, on what your age is, whether your real estate business is your primary income source, or how close to retirement you are.
For example, if you need cash coming in immediately, you may want to wholesale properties to get cash coming in today. If you are going to sell a lot of properties and make a lot of cash, you may also want to keep some properties in your inventory in order to offset some of the profit with depreciation and repairs. Or, if you have made a lot of money this year and you are getting ready to sell yet another property, you may want to push that closing into the following year in order to defer the income from the sale. Or you may want to purchase that property into your Roth IRA so it absorbs the profit on the deal.
Or, if you need deductions to offset income, you can advance into the end of this year expenses for next year such as office supplies, advertising expense or maintenance. Your CPA should be your guide in all of these matter and you need to make sure you keep him or her in the loop regarding your financial situation. The way I do this is to let my CPA’s office do all of my bookkeeping for me on a regular basis and I run current deals by him first before I make a decision as to how I am going to handle a particular deal. I know how complicated this all sounds and it is, this is why you need a professional on your team who can guide you along the way in order to make the best financial decisions for your present and for your future.
I will share with you a little piece of advice from a lesson I learned the hard way; from personal experience. If you don’t keep your CPA in the loop as you make decisions that affect your real estate business, I promise you it will cost you money in the long run!! This resulted in a tough lesson for me by way of a big tax bill I wouldn’t have had had I asked my CPA the best way to handle some deals I did early on. I took some profit personally on a couple of real estate deals which resulted in a huge increase in my personal income; and therefore resulted in me having to write a big check for taxes. Now I don’t mind paying taxes, paying taxes means I am making money, I just want to pay as little tax as legally possible.
I don’t advocate doing anything against the law; I advocate educating yourself on the financial aspect of your business just as you would any other aspect of your real estate business. The more you learn, the more you earn.
To be continued…
