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Intermediate45 minutes16 terms

Tax Strategy for Investors: Key Terms

This curated collection highlights key tax and entity structure terms that might be helpful when optimizing your real estate investment income. Understand commonly referenced concepts like Self-Employment Tax, S-Corp elections, and the QBI Deduction to make informed decisions about your investment vehicle.

Term Collection

1

Real Estate Tax Planning

Real estate tax planning involves strategically managing real estate investments to minimize tax liabilities and maximize after-tax returns, utilizing various deductions, deferrals, and entity structures.

Intermediate5 min
2

Tax Efficiency

Tax efficiency in real estate investing refers to strategies and practices aimed at minimizing an investor's tax liability, thereby maximizing after-tax returns and overall profitability.

Intermediate2-3 min
3

Net Earnings from Self-Employment

Net Earnings from Self-Employment (NESE) represents the profit or loss derived from a trade or business operated by an individual, partnership, or LLC, which is used to calculate the self-employment tax for Social Security and Medicare contributions.

Intermediate5 min
4

Limited Liability Company

A Limited Liability Company (LLC) is a business structure that protects its owners' personal assets from business debts and liabilities, while offering flexible taxation options.

Intermediate13-14 min
5

Pass-Through Entity

A business structure, such as an LLC or S-Corp, where income, losses, deductions, and credits are passed directly to the owners' personal income tax returns, avoiding corporate-level taxation.

Intermediate2 min
6

S-Corp Distributions

S-Corp distributions are payments of profits from an S corporation to its shareholders, which are generally tax-free up to the shareholder's adjusted basis in the company.

Intermediate2-3 min
7

Bonus Depreciation

Bonus depreciation is a tax incentive allowing businesses and real estate investors to immediately deduct a large percentage of the cost of eligible property in the year it's placed in service, accelerating tax savings and boosting cash flow.

Intermediate12-13 min
8

Self-Employment Tax

Self-Employment Tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves, such as independent contractors, freelancers, and real estate investors operating as sole proprietors or partners.

Intermediate5-6 min
9

Entity Structure

An entity structure defines the legal and tax framework under which a real estate investment business operates, impacting liability protection, taxation, and administrative requirements.

Intermediate5-6 min
10

S Corporation

An S Corporation is a federal tax designation for eligible domestic corporations that allows profits and losses to be passed directly to the owners' personal income without being subject to corporate tax rates, avoiding double taxation.

Intermediate5-6 min
11

Reasonable Salary for S-Corp Owners

The amount of compensation an S-Corporation owner, who also works for the business, must pay themselves that is comparable to what an unrelated party would be paid for similar services, to comply with IRS regulations and avoid reclassification of distributions.

Advanced5 min
12

Audit Trigger

An audit trigger is a specific event, transaction, or financial metric on a tax return that increases the likelihood of an IRS or state tax authority examination for a real estate investor.

Intermediate3 min
13

S-Corporation Election

An S-Corporation election is a tax designation allowing a corporation or LLC to pass corporate income, losses, deductions, and credits through to its shareholders' personal income without being subject to corporate tax rates, thereby avoiding double taxation.

Intermediate3 min
14

FICA Tax

FICA Tax, or Federal Insurance Contributions Act Tax, is a U.S. federal payroll tax that funds Social Security and Medicare programs. It is paid by both employees and employers, and by self-employed individuals as self-employment tax.

Intermediate5-6 min
15

Qualified Business Income (QBI) Deduction

The Qualified Business Income (QBI) Deduction, under Section 199A, allows eligible owners of pass-through entities and self-employed individuals to deduct up to 20% of their qualified business income, subject to various income, W-2 wage, and qualified property limitations.

Advanced12-15 min
16

Two-Bucket Strategy

The Two-Bucket Strategy is a real estate investment approach that divides an investor's capital into two distinct allocations: one for stable, income-generating assets and another for higher-risk, growth-oriented opportunities. This method aims to balance immediate cash flow with long-term capital appreciation.

Intermediate4-5 min

Common Questions