How Ensuring Your CPA is a Tax Strategist Could Save You Thousands Every Year

by | dolinsksite.ru

So, it’s not April 15th—or anywhere near that day. It’s not the typical time of year to read an article on tax savings.

Am I a few months too late? Or perhaps the better part of a year too early?

Nope.

As real estate investors, we need to make our tax saving plans long before April 15th. And that means being strategic.

(Note that if you’re in the real estate business as a casual investor or you don’t plan to build a fortune in this arena, this article may not be of interest to you. It will require effort and thought to implement what I recommend here.)

A number of years ago, my business partner and I were building a Hyatt House hotel. About halfway through the process, we began to wonder if there were ways to structure the ownership in a way to maximize our legal protection and minimize our taxes.

I did a Google search, and that’s how I found Ed. He had blogged about his story, and I think it will interest you as well.

Ed is a successful multifamily real estate investor and broker. He made a lot of money for a lot of years. Sadly, he flushed a bunch of it down the toilet as well.

How?

By overpaying the IRS.

tax-changes

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What Tax Strategies Are You Missing Out on?

Don’t get me wrong. Ed wasn’t sending along extra cash with his tax return. He didn’t know he was overpaying, and he would have been appalled if he had. Well, he was appalled when he found out—and understandably angry. (I’ll get to that part of the story in a minute.)

Based on Ed’s income of several hundred thousand, he thought it seemed reasonable for his tax bill to tip the scale above a hundred grand.

Related: 5 High-Value Tax Deductions Real Estate Investors Shouldn’t Miss

One day, Ed read an article about a surprising tax-saving tip. He met with his CPA to share it, and the CPA agreed that it was a great idea and that they should implement that right away. He said maybe they should even re-file for a few years to capture some of these benefits.

Ed, a bit irritated, pressed his accountant a little further: “Why didn’t you tell me about this before?”

His CPA answered (to this effect): “You pay me to do your taxes and oversee your bookkeeping. You don’t pay me to be a tax consultant. I just take what you give me and file your returns. There are probably dozens of ways we could save money on your taxes. But you hadn’t really asked me about this. So I didn’t research or comment on that.”

What?!

When I first heard this story, I was irritated for Ed—and his wife and kids. He would never be able to recover the money he flushed down the toilet over many years.

Hiring a Tax Strategist (vs. a CPA)

He said he spent about $120,000 or so per year in taxes over much of the decade leading up to his revelation. But in the decade since, he hired a tax strategist/CPA, and he has paid exactly zero to Uncle Sam on his passive multifamily investments.

Zero!

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.” —Judge Learned Hand, 2nd District Court of Appeals, 1934

This may not apply to everyone, but even if you could save half that much, wouldn’t you want to know how?

To be clear, I have gotten to know Ed since that time. He is a high-integrity guy, and he files honest returns. He is conservative by nature. That’s how tax-beneficial the commercial multifamily real estate asset class can be!

Hopefully your CPA is better than that one. But I encourage you to be sure he or she is highly ethical, while at the same time looking for every possible tax advantage for you.

What a Tax Strategist Might Teach You

I hired the same tax strategist/CPA who saves Ed over $100k annually. He has saved me a boatload of taxes as well. My tax strategist teaches his clients…

  • …about the importance of direct investment in real estate. No more REITs for me!
  • …about the power of cost segregation studies. Super-charge your depreciation schedule and receive negative K-1s for years.
  • …how to treat cash flow as return of capital rather than distributions of profit.
  • …how to defer taxes through a 1031 exchange.
  • …how to reset your asset basis to zero at the time of inheritance, allowing heirs to pay zero at the time of inheritance and possibly at a later sale.
  • …how to “partner with the IRS” to use self-directed Roth and SEP IRAs, qualified retirement plans, and other tax savings to pay as little tax as possible.
  • …how to avoid passive loss limitations by qualifying as a “real estate professional” according to IRS guidelines.
  • …how to discern the difference between regular and semi-boneless ham. (Not really—I just want to see who was skimming this article and who really wants to save on their taxes.)

I am aware that many Do linsk site readers are knowledgable of all of these strategies and more. And I think most good CPAs are aware of them as well.

Related: Property Depreciation: Why the Tax Benefits Could Come Back to Bite You

But I’m writing to stress the importance of implementing them—and partnering with a strategic CPA who specializes in real estate and hates paying excess taxes as much as you do.

I am not sharing my tax strategist/CPA information here on this post, but if anyone wants to connect with him, send me a Do linsk site message, and I’ll give you his contact info.

So, what tax savings strategies have you employed in your real estate business?

Let’s chat below.

About Author

Paul Moore

Paul is author of The Perfect Investment - Create Enduring Wealth from the Historic Shift to Multifamily Housing, which you should probably get if you want to learn to invest in multifamily. He leads Wellings Capital, a multifamily investment firm, and hosts the How to Lose Money podcast. Paul was 2-time Finalist for MI Entrepreneur of the Year, has flipped 60 homes and 30 waterfront lots, developed a subdivision, and appeared on HGTV. Paul's firm invests heavily to fight human trafficking and rescue its victims.

173 Comments

  1. William Morrison

    Wait, I can’t get over here very often and I’m afraid I’m going to miss out when the answer to the last question is provided in the comments. …how to discern the difference between regular and semi-boneless ham.

    Seriously nice intro to start a discussion.
    To the CPA and Accountant I would add Financial Advisors (typically canned advise disguised as tailored to the individual) and Business Entity Setup Gurus (might be an Attorney).
    It seems its common for each to develop a canned approach that is missing pieces.
    What might always be more important but tough to get is recommendations from those who have been successful over time for the person they use, like in your case.

  2. Phuong Nguyen on

    Hi Paul, very interesting article. I would like to connect with you and please forward me your tax strategist’s contact information. Hope to hear from you soon.

    • Paul Moore

      Hi Jack. Vetting a tax strategist would be very similar to vetting a lawyer or a property management company. You would want to look at experience, past clients, track record with past clients, and generally get to know the person. You would also want to know details about how much money the tax strategist has saved past clients, and the process used for each. There are ones that specialize in just real estate. Feel free to send me a connection request for a referral.

    • Paul Moore

      Jack.

      Great question. When I interviewed my guy, it was obvious. He answered all my questions plus many I didn’t ask. He specializes in real estate, is very entrepreneurial, and very ethical. Takes every opportunity for legit deductions and never suggests bending the rules.

      I wonder if there are others on BP or who the BP community would recommend? I’m glad to refer mine privately.

  3. Mary White

    Do you recommend a tax strategist when you’re relatively new at multi-family investing? We have a 6-plex and a 4-plex and are hoping to use BRRRR money in about 6 months to buy an apartment complex. We’ll have around $300,000 in cash to put down on an apartment and just really want to be smart about the steps we take.

    If you think you’re guy could help my family please send me his information. If we’re too small of potatoes, I understand. Thanks for the great article.

    • Paul Moore

      Mary.

      Yes I absolutely do! He helped me with some things for my residential real estate business that should have. Even obvious from the day we started, but I had missed.

      Let’s connect and I’ll share the details.

  4. JL Hut

    Paul, for your eyes only. I implore you to not mention the semi-boneless ham tax avoidance strategy in public forums going forward. I am highly concerned that if word gets out to the general public and it becomes over used by investors it will attract the attention of the IRS and Congress and will most certainly cause it to be repealed. While in some sections of this strategy there would be little harm in divulging to the public because of its dependence on section 3a, subsection c. But I must remind you of the oath you swore at our last meeting never to reveal subsection c. to anyone outside of our society. Do I need to mention the grave consequences? Uphold the solemn oath, the financial prosperity of our closed society depends on it.

    Destroy this email after reading.

    JL

  5. JL Hut

    My last post was intended as a private message to Paul only. I ask anyone who has read it to destroy it immediately. You will be rewarded for your cooperation, our operatives are watching you and also working on removing traces of it on servers worldwide as I speak.

    • Paul Moore

      JL,
      I spoke to those at the top of the heap… dung heap though it is… and they decided that we should go ahead and release our secrets. This post has already gone out to the four winds, and the operatives are gearing up for a raid on the Solar Federation. By the year 2112, they will have resumed control. I take it that you have disposed of all your boneless and boned ham in preparation for what some are already referring to as Armageddon. I know my family is well prepared. I can only hope at least. Thanks for the warnings, and for keeping it all so… secret.

  6. Alik Levin

    10 points for semi-boneless ham!! Good laughs!
    On a serious note, you list out very aggressive strategies as cost segregation and qualifying for real estate professional and dealing with passive losses. Gosh… I spent so much time, energy, and money last year when I launched my career as real estate investor trying to figure it all out. The information out is confusing to say the least. Now that I feel comfortable with it and past my first tax season as an investor I gained a lot of confidence, but looking back I was desperate for prescriptive guidance from a pro like yourself.

    • Paul Moore

      Alik, all the info can certainly be confusing! Congrats making it through your first tax season. Feel free to message me if you haven’t already, I am a bit overwhelmed with all the emails, comments, and BP messages.

  7. Brianna Stovall on

    Hi Paul, would love to get your strategists’ contact info – could you please message me with that? I see that he specializes in RE, but can he help with general tax strategy as well regarding a C-Corp run in a self-directed 401k? I’m hoping to develop a strategy to utilize that business’ profits to invest in RE as well if possible.

    • Paul Moore

      Brianna, due to the volume of requests I am getting, please message me via Do linsk site for the referral. I don’t know his specific knowledge about using business’ profits to invest in real estate, but he is very good.

  8. Sharon Goebel

    Hi,

    Love the article. I was just going to post a need for a referral in this area. May I have the contact info, also I am guessing I would also need a CPA who knows about the strategies to be able to do my taxes as well, am I correct, as y current one is not even familiar with using self directed IRA’s to purchase and reap the benefits. I am south of Atlanta. My email is [email protected]. Thanks so much.

    • Paul Moore

      Hi Ron, I’m not sure what you mean by infomercial? I don’t know any in San Diego. You can message me and I can share the contact info, as I explicitly mentioned in my post. I am not sharing any contact info publicly.

    • Paul Moore

      Hey Vestonia, due to the volume of requests I am getting, it will be easier for me to respond if you message me. Please note that tax strategists will be most helpful for established investors, but learning early never hurts.

  9. “His CPA answered (to this effect): “You pay me to do your taxes and oversee your bookkeeping. You don’t pay me to be a tax consultant. I just take what you give me and file your returns. There are probably dozens of ways we could save money on your taxes. But you hadn’t really asked me about this. So I didn’t research or comment on that.”

    That’s amazing. I know that HR Block tax preparers receive specific training for advising clients how to arrange their tax affairs based on the current year tax return. It seems that a good bet would be a HR Block “master tax advisor.” Use those words. It is the specific name of their highest ranking preparers. There is one higher but it is an IRS ranking–Enrolled Agent. EAs do not work for the IRS, but they are authorized to represent tax payers in tax court. Most HR Block offices have at least one EA.

    • William Morrison

      And that’s why every year the local news goes there several times and gets a different answer every time.

      And personally a family member showed me theirs after first trip with a rental and the Schedule E was wrong. I filled it out in few minutes. They went back and got a credit and apology but no refund. It was as straight forward as they come.
      Part of the answer was so similar to the above, you think that was the training.

      • A couple of anecdotes mean nothing. If you call the IRS using the preparer’s special line, every one who answers will give you a different answer to the same question. Colleagues and I routinely test this principle. HR Block preparers prepare or double-check millions of returns per year, and regularly find errors in CPA-prepared returns. Normally, what clients think is a “straightforward” return, usually isn’t. The HR Block software is extremely thorough and rarely misses anything. Their training is excellent. There are several ranks of preparers, something the general public does not know. Office managers usually do not let newbies do Schedule Es.

        • William Morrison

          You’re just too easy.
          Here’s another and the list isn’t short.
          I personally had to go two supervisor levels up on the phone when their business software wouldn’t print W2s on the 29th. They had not released the update to move from draft. And each one said the same “well trained” answer, “that just means the IRS has not approved it yet”. It couldn’t be H&R Block.
          Even when I called back and gave then the approval date that was 6 months earlier and it is every year for a W2 they were admit it couldn’t be true. We are talking the W2.
          You can continue to defend H&R Block and I’ll leave you alone. But don’t think I and others wont be laughing. It is hilarious.

        • Guillermo Birmingham

          And we as CPA’s also find errors made by HR Block prepared returns. It’s really based upon the care, training and professionalism of the person preparing the return. There are many Non-CPAs who do an excellent job in tax prep…and there are many CPAs who also do well. As well as the other side…those that do a terrible job on both sides of the ledger.

          With regards to calling the IRS and getting different answers, I think the IRS does a good job of publishing all sorts of guidance…I think one should at least attempt to look for the info on their own first…It usually takes up to an hour for the IRS to answer the phone anyways.

        • I have my own beefs with HR Block. I also know that a lot of people love to hate HR Block. Regardless of your few anecdotes, HR Block has a great record of accuracy. The denominator is 23 million returns. As Guillermo implies, tallying up anecdotes is pointless.

    • Paul Moore

      Katie
      Thanks for the comments. You would think that we, as real estate investors, would have access to better consulting/tax preparers than a retail tax prep would usually entail. I wonder if H&R Block preparers really follow through to help their clients as they are trained to do?

      • It depends a lot on the office manager. Some of them are more interested in boosting their personal statistics with the company. Some are committed to promoting a culture of client service. If you are a preparer in the first office, you will probably be scolded regularly for not prioritizing your own statistics because the office manager shares credit for them. If you are blessed to be in the second office, you will have ample opportunity to help clients. For many of these clients, their HRB tax advisor is the best qualified and most impartial financial adviser they will ever have. Their other alternative is to google their advice.

        They keep changing the exact number and parameters, but there are approximately eight ranks within HRB. Their highest rank is Master Tax Advisor and MTAs are extremely knowledgeable. Even better are EAs. They have to pass six hours of extremely grueling knowledge tests. They are authorized to represent taxpayers in tax court. They better have their act together. Most HRB offices have at least one EA. Unfortunately, many CPA turn their noses up at EAs for no good reason.

        If you want to use HRB, then I suggest you ask for an EA or at least a MTA. they have been around the block a few times and they have probably withstood a few office managers along the way.

      • bill W

        This is not rocket science anyone who seriously invest in real estate should know all of these strategies. I only invest in commercial real estate and employ all of the strategies mentioned as does everyone else I know. Any accountant with his salt should know these.

        • Given the response to the original post, it appears that many investors have not found tax strategists to be readily available.

  10. Grant Warrington

    Hello Paul,

    Great article as always! Thanks for positing. I sent you a pm to get the contact info. I just finished your book, “The Perfect Investment,” and I highly recommend it to anyone interested in buying an apartment building. Keep up the great work and I hope you’re doing well!

    Grant

    • Paul Moore

      Grant,

      Thanks for your kind comments. I’m glad you enjoyed the book and the article. After the response to this article, I plan to write about Accelerated Depreciation through Cost Segregation studies next.

      Stay in touch… Go Detroit!

  11. William Morrison

    Do you think the list of people asking for the contact would be this long if the industry didn’t have a problem? I have a list of questions I ask CPAs and you might be a good one based on them but that doesn’t mean your industry doesn’t have a problem.

    • Brandon Hall

      I think the list of folks asking for a referral think: (1) this is an offer for free advice or (2) they think a “tax strategist” must different than a CPA, primarily from the misleading title.

      I feel Paul does a good job of explaining what an investor needs throughout the article. The investor needs a tax professional who will offer proactive advice. If you notice, Paul’s example of a CPA is intended to show you what a BAD CPA does (or won’t do). But he also refers to his tax strategist as a CPA (“tax strategist/CPA). Thus, Paul does not think that CPAs are bad. His closing paragraph emphasizes that.

      It’s Bigger Pockets who loves to change the title to something that will get people wound up, and give people the wrong idea.

      Paul is not intending to knock CPAs. He is just saying to make sure you snag a CPA who is truly in your corner and who will make sure you are maximizing the efficiencies of your tax postion.

      I’d wager Paul’s tax strategist is/was a CPA.

      • William Morrison

        Brandon I mostly agree. I have my own alphabet at the end of my name and that doesn’t mean my industry or yours doesn’t have a problem.
        Because I’m at a point in my life where I meet many from industries with credentials I get to ask questions as if it doesn’t affect my future which it does not. And within a few minutes and with few questions you can tell a lot about the person being questioned.
        That said, the farther down the ladder you are the harder it is to find good sources. (in my alphabet or yours)

      • Paul Moore

        Brandon.

        That is exactly right. It was certainly not my intent to bash CPAs and in fact the guy I am recommending is a CPA. As in every profession, there are good and bad players.

        Thanks for saying that better than I could have.

  12. Guillermo Birmingham

    I see posts like this all the time…It’s either financial advisors, tax attorneys, EAs, and CPAs all trying to differentiate themselves from the other by bashing another professional or industry. If one can’t let their ideas stand on their own, without bashing another profession, then in my view it cheapens their argument. If the information is good, people will gravitate to it. I recently saw a series of videos where a financial advisor went on and on about what a CPA does and doesn’t do (hint: CPAs only do “bookkeeping…they don’t know anything about tax planning”). That’s like saying if you aren’t a neurosurgeon, then you’re really not a doctor. Or if you aren’t a criminal attorney, then you’re not really an attorney. The fact is that in every professional field there are folks who specialize. So maybe it’s a pet peeve of mine, but I find the headline of this article cheapens it.

    If you, by your reference to problems in the industry are talking about the tax preparation business…I agree there are problems with it. But you can’t lay that at the feet of CPAs solely. It’s an industry that the IRS tried to regulate by requiring certain levels of certification, but they got sued in court. Most of the problems you read about or are made aware of, aren’t CPAs, EAs, or Tax Attorneys…the ethical ones at least.

  13. Jimmy Chin

    Hi Paul, thank you very much for this insightful article. Would you be able to pass along the contact information for your tax strategist? I’ve been looking for one but without much success and would like to speak to yours and see if they are a fit.

  14. Schelley Stamps

    Id love info about a local or nearby tax strategist, Ive been a RE investor & landlord for a long time, & Ive tried to get my accountant to be more pro-active with me but he hasnt. I chose him 2 years ago because I heard he was a investor as well & thought he would know more about RE tax stratagies, but if he does he doesnt share them…lol…. I was looking @ a fee based financial planner, but they didnt know anything about RE Investing. I am in a transitional period myself as we speak, because Im starting to sell off some homes in a “transitional” part of town that isnt improving, but am not ready to buy right away. Any help will be greatly appreciated! Im from a small town called Brunswick, Ga, between Savannah Ga & Jacksonville Fl.

  15. Curt Smith

    Hi there, a good friend changes CPAs because the new one looking over their last years tax return, said the current CPA missed $XXX thousands in too much tax paid. Of course they switched and they filed an amended return, POOF!!! instant audit, they ended up having to sell a rental to cover the penalties etc etc. Took 2 years of missery.

    Lesson #1; when you sign a return you are attesting all is true.

    Lesson #2: when you sign an ammended return that negates and materially changes the truths you gave in your primary return you are in effect saying you lied on your first return. This is an instant audit. DOH!!!!

    Lesson #3: Learn enough about the basically pretty simple tax issues involved with flippinng and sched E rentals so you can tell if a CPA is pulling your leg and also if the returns they are prepping make sense. I see carelessness on the investors part turning over their business to others and I’m sorry to hear these stories but its all preventalble.

    I’ll not mention being so stupid as to listen to pitches about I’ll save you $XXX more, let me do your returns from now on. Too much to say on this topic so have to stop here.

    Yes tax strategy is buried in my story above, else how could one CPA attempt significant tax reductions. Sure on seeking education, but no mention here of that us investors need to educate ourselves first before we can tell if we are being given good or BAD advice. Little mention of the likelihood of being given bad advice. All of the CPAs here on BP write excellent articles and I’m sure are top notch and professional,,,, but out in the real world this not always the case and how is the uneducated investor to tell one from the other?

    My bottom line is: yes a agree with this blog post 200%, but beware filing amended returns OR agressive strategies, and educate yourself even if you hate taxes more then root canals. You need to know about taxes as much as you need to know about MAO and paint colors. 🙂

    • Paul Moore

      Curt,

      Excellent post! I would never have thought about an amended return triggering an audit. Wow. That is super-helpful.

      More importantly, I agree with your comments about getting to know this stuff yourself so that you can oversee your preparer’s work. That is so important, and yes, that would be a great reason for me to amend my article.

      Well… maybe I better not do an amendment. 🙂

      Thanks again.

  16. SATPAL NARANG

    Hi Paul this was a very insightful article and one definitely needs a good tax strategist. They are hard to come by. Would appreciate if you can share his information with me as I definitely would like to use the services of one.
    Thanks
    Satpal

  17. Daniel Podgorski

    Can a tax strategists work with individuals from all states? Or should we get a strategist from states in which we own or plan to own rentals?

    Regardless, I would also appreciate the contact info of a tax strategist.

    (I do not own real estate yet. I am looking in AZ, TX, FL)

  18. Michael Genrich

    Hi Paul:

    We’ve used a CPA for years yet I can’t help wondering why we pay so much in taxes! We own 3 duplexes and a house as well as a business that we rent out. Would a tax strategist be a wise choice for us considering that we are rather small? Please send me info.

    Thank you,
    Mike

    • Paul Moore

      Mike,

      Absolutely. My tax strategist helped me with issues that seemed small, but made a big impact. Like a Medical Expense Reimbursement Account. This has resulted in tax free medical expenses for almost 5 years now. A big deal for any entrepreneur. Not related to the size of the business, but the size of my health care bills.

  19. Nancy Bancroft

    Paul, thanks for this article! (I’m glad so Bigger Pockets re-posted it:) Please do send me the contact info for your tax strategist, plus, if you are willing, his/her current hourly rate for advising. Even better, do you know of a good real estate tax strategist who would give an initial free consult by phone? (I’m about to do a 1031 but am cash-poor for the next month or two.)
    Thanks again,
    Nancy

  20. Andrew Ziebro

    My CPA IS a tax strategist and a damn good one too!! Our first consultation was all about how to structure my business to avoid overpaying and to meet quarterly to reassess and adjust as my business grows and diversifies.

    So don’t throw all CPA’s under the bus. Some are like Dawn Hryshko, (Broadview Heights, Ohio btw), great at both!

  21. Michael McCormick

    The right time to do tax planning is as early in the year or as early in a transaction as possible. Certainly before contracts are signed. Unfortunately by the time a tax professional is consulted it’s oftentimes after documents have been signed or after December 31st. When it comes time to prepare returns the client says here’s what I did. Had the client engaged a professional beforehand and said here’s what I am thinking about doing the tax story may have been extraordinarily different. Once contracts are signed you cannot re-write history.

    For most taxpayers the tax carriage to turns into a pumpkin on December 31st and most tax planning strategies and opportunities get reset to the new year. Yes there’s a cost/investment in tax planning but the ultimate cost of not planning could be significantly higher.

    For example, if an investor is planning to do a §1031 exchange and rolling sale proceeds into another property but cashing out and deferring tax for 30 years would be better the investor wouldn’t necessarily know unless he brought in a tax planning expert early enough in the process

  22. Dear Paul,
    Thanks for the valuable information shared in your article. I would like the contact of your tax strategist. I’m in San Francisco, California.
    Thank you.

  23. Barbara Biddle

    I just requested a connection with you through bigger pockets. I’d like your tax strategist contact, please. Or if you know of one in Maryland, that would be appreciated. I’m new at this business–just bought my second property (first multi-family). Figure I might as well address taxes intelligently from the start! Thanks for the article.

  24. Paul Moore

    Guillermo,

    First, thanks for taking the time to read my article and for your comment. As I mentioned below Brandon’s comment, I really had no intention to bash the whole industry.

    Second, your article is outstanding! Thanks for sharing that. Very comprehensive and would be very helpful to BP readers. Here it is again for anyone who missed it: https://linkedin.com/pulse/top-ten-tax-mistakes-made-real-estate-investors-birmingham-cpa?articleId=6294869963236790272#comments-6294869963236790272&trk=prof-post

    Thanks again for commenting, Guillermo!

  25. Luba Tsoir

    Great article!
    I was reading about every subject mentioning here, except “how to treat cash flow as return of capital rather than distributions of profit”
    Can you briefly explain how this can help with taxes?

    • Paul Moore

      Hi Luba,

      I will be writing a future post (late August?) about that topic. In summary, it means that in some cases, distributions of cash can be treated as a return of original investment rather than profits.

      For example, if you invested $100,000, and were getting a check for $8,000 annually, under this thought process, the first 12+ years returns could be considered a return of your $100k, and not profit. And therefore not taxable. This reduces your basis, which means you would have a greater tax liability later.

      Thanks for posting. Great question.

  26. Nichole Stohler

    Paul, thank you for sharing! I have a similar story to Ed… After investing in multifamily for six years and handing everything over to our CPA each year to handle our taxes I came across the Do linsk site book on tax strategies in January 2017. WOW! What an eye-opener. I immediately found strategies that we had had not implemented but would have fit our situation. And like Ed, I didn’t understand why our CPA didn’t bring these ideas to us proactively. In fact, I was angry.

    But the reality is that this was my own fault.

    How could I expect a CPA to know what my investment plans were during the year if I didn’t fill him in? Why would he bring up ideas if I never asked? Every tax season, he’s just trying to get through as many filings in a timely manner as possible. He’s working “in the business” and it is my job to work “on the business” which I did not do. Shame on me and I’ve taken steps to correct the situation.

    It seems so obvious to me now that I made all of the wrong assumptions. But it’s only obvious because I have since learned that there is an opportunity to proactively plan. Your post is incredibly helpful for others who have been making the same assumptions as me. Thank you again!

    – Nichole

  27. Paul Moore

    Nichole,

    Thanks for your kind comments and your example of humility. One of the most important things in life and business is to take responsibility for our own actions (or inaction). This has been a common theme on our podcast and I know it will serve you well as you continue to progress in your career.

    Thanks!

  28. Paul – You are amazing. Love your articles as well. I am in Los Angeles area and would love to know if you know of anyone well versed in tax strategy here in LA.

    I also would love to know how do you find out what are good area out of the state of residency. For instance, I don’t want to have all my eggs in one basket and would love to have properties in Florida, AZ, and other places.

    Is there a way to find out which are the good B areas for Commercial property investment?

  29. Paul Moore

    Hi George,

    Thanks for your kind affirmations! I replied to you on the tax strategist separately.

    As far as choosing locations for other investments, I would be happy to have the conversation with you. We have a 24-point market screen to help us screen out and locate markets where we want to invest. We have specifically decided – for us – to avoid CA, AZ, NV and FL. The last recession and other prior ups and downs have shown that these states seem to carry an abnormally high risk that we are trying to avoid. Time them right and make a fortune. Time them wrong… and lose your shirt.

    There enough risks in the realm of investing, and we choose to live without this one.

    We do like cities with positive net population migration, low unemployment, a diverse economy, etc., in states that are not antagonistic toward landlords. Many cities in Texas and the Carolinas are good examples.

    Thanks.

  30. Frederick Kirk Wendel

    Paul, due to the volume of requests you are getting, I will follow instructions and message you via Do linsk site for the referral.

    Your 24 point market screen sounds intriguing to me also. Do you happen to have an article or post on how you matched this up with your Niche/Market/Strategy? I am just getting started (basic education phase) and would love this kind of heads up moving forward.

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