How Investing Creates Cash Flow and Tax Deductions That Can Help Create Wealth
Well it is that time of year again. A time most of us dread, tax time. Time to sift through all the receipts and see what tax deductions you can come up with to hopefully generate a tax refund.
Get your tax liability under control
Most real estate investors know that owning property offers some of the best tax benefits of any investment. For some this is the number one reason they invest in real estate. Indeed there are major tax benefits to investing in real estate.
My wealth creation took off after understanding this statement, “You cannot truly create wealth until you get your tax liability under control”. This is from a book called Wealth Without Risk which is a suggested read for anyone looking to gain wealth.
While this book was written in the 80’s and certainly has some outdated philosophies, the main education is centered on the principles of structuring your finances and investments in a fashion that will allow you to maximize tax deductions and take all legal deductions available to you.
Real estate offers some of the best tax shelter options available
Reading this book propelled me into high gear and is one of the main reasons I wanted to invest in real estate. The tax benefit from owning property was so impressive that I was essentially able to give myself a raise. The more real estate I owned the more tax benefits I had.
These tax benefits allowed me to take less money each week from my tax withholdings. Instead of claiming zero exemptions on my weekly paychecks (to maximize my tax contributions), each pay period I was able to increase my deductions to actually represent the 3 people that I had living in my household that I was responsible to provide for every day. Because I was claiming 3 dependents, my take home pay went up. This was a very inviting “Ah Ha” moment for me.
Tax benefits of real estate investing
I strongly recommend that as you talk with your tax person to get taxes prepared this year, that you actually ask your advisor about how investing in real estate will personally affect your tax situation.
To get the very best understanding as to how real estate investing will benefit you, you will want to ask your tax advisor his or her thoughts about real estate investing relative to your financial situation. Each and every person has their own tax advisor for the simple reason each person’s financial picture and perhaps financial outlook is different.
In the meantime to get an understanding of the basic benefits derived from real estate investing look at the basic real estate deductions outlined in our post, Tax Benefits for Real Estate Investors – Componentizing Depreciation.