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Thread: Tax help

  1. #1

    Default Tax help

    Hello everyone, my name is Dave, I am new to the forum and trying to learn some information about claiming the most net income while paying the least amount of actual tax. (isnt everyone lol)

    I am an auto dealer, a real estate broker and a landlord and am trying to secure bank financing for working capital. My credit score is in the 750-770 range, I have 100% on time payment history, I own a million dollars in paid off assets (real estate) and yet I've been declined for simple commercial mortgages, lines of credit and even a non owner occupied home equity due to low reported income.

    I am a complete novice when it comes to income tax, deductions vs exemptions, depreciation, self employment tax, passive income tax ext.


    I am seeking advice on tactics (if there are any) for claiming a certain amount of net profit, but paying less actual tax if this makes sense. For example, I believe you are allowed a $3,000 deduction per dependent which doesn't lower your net profit like write offs do, rather only lowers the amount of tax in which you need to pay.

    So if I made 100k net profit with zero dependents at a federal tax rate of 25% I would be paying $25,000 in tax.. BUT if I had 3 dependents, even though I claimed 100k net income, I would only be responsible for paying tax on $91,000. (if $3k per dependent is accurate)

    Im not even 100% that's how it works, that's how little I know, but if it is, are there any other deductions in which I can keep my net income at a high number, but pay a discounted number in tax?

    Any and all help is appreciated.

  2. #2
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    Welcome to the forum Dave. I'm not an accountant or tax expert so keep that in mind when reading this. I don't know specifically how your business is set up and what tax forms you fill out, but looking at my own taxes there are deductions that come after where I list my income for the year. In my case I fill out a 1040. I calculate my income using a 1040 Schedule C, which includes the standard types of deductions for general business expenses and after all the math I have my income for the year. After that number is reported on the 1040, there are other deductions that come from form 1040A such as medical, home, and charity.

    You may fill out different forms, but I'm guessing there are deductions that come after where you report your net income. Those are probably the deductions you're looking for since they all reduce your income for the purposes of paying taxes, but they don't actually lower what's reported as income.
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    First off for simplicity lets say you are making $ 100,000.00 and are in the 25% bracket. The good news is that your taxes are not $ 25,000.00.

    Federal income tax is graduated. For a married person you pay zero percent on the first. $ 18,450 in taxes then you pay at a 15% tax rate to $ 74,900 and the income over that is taxed at 25% (up to about $ 150,000). You would be paying about 16 -17% overall. However you can have individual deductions, and the standard deduction. Those come off before you figure your percentage so now we are down to probably 15% or maybe a hair less.

    There are lots of ways to reduce taxes but reducing taxes while showing increased income is a tough nut to crack.

    Uncle Sam needs your money anyway. Look at all the poor people who would have to go out and get a job if it wasn't for the taxes you pay.
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  4. #4

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    If you have good credit and the project you want the loan for is sound and expected to generate sufficient cash flow then your income should be less of an issue.

    How are your underlying assets cash flowing?

    In my experience most buy and hold real estate positions have poor to no cash flow.
    The reason for taking a buy and hold position in most real estate deals is asset appreciation.
    Most banks will not allow the business owner to monetized the capital appreciation when the underlying assets will not spin off enough capital to maintenance the higher debt load.

    What do you intend to use the money for?

    Another thing I am wondering at the moment is why you, personally are trying to get a loan.
    Most business owners who have acquired millions in assets typically are using a corporate entity to house the assets and shield the owner from liabilities.
    At this stage you should not be using your personal credit for any business venture as your company should have built up a credit history and be able to seek financing independently from you.

    Now for the tax question.... I deal with this issue every day.
    There are different strategies depending on the industry, entity structure and you long term plans.
    An easy no brainer is a retirement account so you can show higher income and then pealing it off tax free.
    After that it gets more complicated.
    As a result I would advise you find a CPA or tax attorney in your local community that has experience in business tax planning and related matters.
    This is not an question for H&R Block or the friendly accountant the does your friends 1040 and this is not a DIY online thing either because of the issues that will be specific to your particular situation.
    Phillip Zagotti
    Partner - Zagotti & Burdette CPA, LLC
    http://znbcpa.com

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