5 Tips for Maximizing Your Tax Income Deductions for Next Year

Maximizing your income tax deductions is an ongoing, year long process.

May 4, 2014 at 1:00PM


Another April 15th has come and gone.

I bet many of you were busy in the last few weeks or so getting receipts together, reviewing the books, compiling spreadsheets, filling out forms and getting all the paperwork together to meet the income tax filing deadline. Income taxes are unfortunately a big part of our business. If you are like me, you want to minimize your income tax burden. Real estate investing is a great way to do that, but doing so requires the filling out of numerous forms and some serious record keeping.

Maximizing your income tax deductions is an ongoing, year long process. Trying to get it all together a week before the filing deadline is not the way to go. In the rush to complete you will miss something. Receipts will be misplaced and deductions will be lost. If these last two sentences describe you this year, don't worry. It is not too late to start preparing for next year. In fact, now is a great time to get started.

Keeping things organized to get the maximum deduction is not rocket science, but it does require some effort on your part, even if you use a CPA. Here are some things I have learned over the years that have helped me get the forms filed on time and maximize my deductions.

5 Tips for Keeping Organized With Your Taxes

1. Know The Forms. Yes, there are numerous deductions you can get as a real estate investor, but each one has its own form and then that form may have numerous sub-forms. Get to know how these forms work and flow. For example, if you hold properties in a corporation and file form 1065, form 8825 shows your property's income and expenses. One of those expenses is depreciation. But depreciation is found on form 4652. Sounds cumbersome and it is, but every form must be filled out properly to get all the deductions you are entitled to.

2. Match Your Accounting System to the Tax Forms – Most tax forms want specific pieces of information, like certain types of expense or income. For example, IRS form 8825 lists specific types of expenses associated with owning properties such as repairs, utilities, etc.   Set up your accounting system to report exactly what the tax forms are looking for rather than trying to make your expenses fit the IRS categories later on. Many accounting systems will already do this for you. Makes your life easier come April.

3. Don't Procrastinate. I have done my own taxes for years. They are not difficult to do but do take some time. So beginning around the end of January I try to make it a point to work on my income taxes for at least one hour per day or so during the week, even if it is just organizing paper. Just an hour per day seems to make this gigantic task manageable. When that first week in April rolls around I am glad I did all of this prep work.

4. If You Don't Know, Ask. Read and learn all you can about taxes and their preparation, but also have a trusted CPA available. Believe me, you can read all the tax preparation books out there and some things will still not make sense. In my case, a simple email to my CPA will usually get my problem resolved.

5. Take the Time to Take Your Deductions. As I said, there are many deductions you can take as a real estate investor, but many times to be able to fully utilize them you have to follow the rules. The rules often mean documentation and paperwork, which can be a real hassle to keep up with and do.

For example, you can get a deduction of 56 cents per mile for the business use of your vehicle. However, you have to keep track of every mile, every day. That means writing it down every day. I myself am guilty of not keeping up with it and have made it a goal to keep up with every mile this year.

Income taxes and their preparation can be really stressful, but it does not have to be. Preparation and documentation is the key to less stress. Even if you do not do your own taxes and use a CPA, preparation and documentation are still the keys that apply. The more info you have for you or your accountant the better off you will be. Unfortunately, income tax preparation is a year round job. The last thing you want to do is wait until April of 2015 to get started. 

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This article is Copyright 2014 BiggerPockets, Inc

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

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