How to Take Advantage of Tax Deductions for Corporations or Entities

In this episode of Coffee with Carl, attorney Carl Zoellner goes over some common and not-so-common ways of utilizing your corporation to take advantage of the corporate Tax Code and its benefits.

Updated January 26, 2021

If you invest in real estate, you may have a corporation (whether a traditional corporation or an LLC taxed as a corporation), which we affectionately refer to around here as our management company. One thing, however, that clients are sometimes surprised to hear is that, depending on how you invest and how diversified your portfolio is, your corporation can actually do some other interesting things.

One of the primary reasons behind using a corporation as a management company for real estate investments is the corporate Tax Code, which allows for significantly more deductions than the individual Code. So in this way, your corporation is your tax deduction vehicle, allowing you to access benefits you couldn’t otherwise reach.

Beyond investment property management, other things that active corporations can be paid for include any activities for which you would pay another business a reasonable amount for. This could include marketing or consulting services, as well as other management services beyond property management.

When the true power of the corporate Tax Code starts having a positive effect in their businesses, one of the main questions clients ask me is, “How do I get more money to my corporation?”

If you’re in real estate, you’re running your flipping or wholesaling income through your corporation. In fact, you can even lend from your corporation. Another potential is investing in syndications (be careful to conduct thorough tax planning if going this route, though, to ensure you’re not paying extra taxes on this).

One alternative possibility here is direct investment: things like property development or other endeavors wherein your corporation enters into a deal with the intent to make a profit. If you’re entering into something with the intent to sell, it’s critical to do this through your corporation because, otherwise, you will be labelled with the dreaded “dealer status.”

Another possibility involves your brokerage account. If you invest in real estate but also have a brokerage account, your corporation can work as a partner in an LLC, which can then receive a guaranteed payment to partner. This allows you corporate deductions you couldn’t otherwise claim as an individual. The same corporation could also manage your real estate.

When we create corporations and other entities here at Anderson, we don’t limit the corporation’s purpose to just one activity (unless required by a lender). We’ll set it up to conduct any legitimate business activity, allowing you the flexibility to take advantage of strategies such as this.

The Takeaway

Ultimately, your entity structure should be as unique as your individual investing and business game plan. There’s no one-size-fits-all strategy when it comes to integrating entities such as corporations, LLCs, QRPs, and trusts into your investing tactics. For best results, you’ll need an individualized plan.

That’s why I encourage you to take advantage of a complimentary Strategy Session as a blog reader now. It’s a $750 value, and you’ll walk away with a custom entity structure that’s ideally suited to YOU, not just any Joe Investor. You can schedule online or by calling 888.871.8535.

Watch as Carl covers alternative uses for corporate entities in conjunction with your overall entity structure.

Got an idea for a future Coffee with Carl? Send it to Carl at cwc@andersonadvisors.com.

BONUS VIDEO

https://youtu.be/1EnJI5TdeEg