You know, as the COVID 19 crisis was really beginning to hit us in March, corporate taxes were due. Immediately after that, of course, the IRS pushed Tax Day back to July 15th.
Now, plenty of business owners filed for an extension, but I wanted to take a few minutes today to go over some of the self employment deductions we’re always getting questions about, to help you for 2020.
We’ve all got a little extra free time these days, so maybe this can help you to create the best plan for moving forward.
First things first – what many don’t realize, when you work for yourself, you’ll play and PAY the part of employer and employee – at least when it comes to Social Security and Medicare taxes—a whopping 15.3% of net self-employment income. Yes, you’ll have the opportunity to write off half of what you pay as an adjustment to income AND you can also deduct contributions to a self-directed retirement plan. There are other benefits, too, the costs of health insurance in some instances.
Even with that said, there are many other smaller deductions that business owners often fail to realize until we remind them of the options they have. Let’s look at the ones that are most commonly forgotten or not used fully…
First of all, I’m very bullish on the Lifetime Learning Credit, which I’ve mentioned many times in my emails and newsletters. Depending on the class and your income, up to $2,000 from the first $10,000 spent can be deducted for tuition from accredited institutions. Obviously, this gives business owners a great resource to use to continue to sharpen their skills. Don’t miss out on it!
Another often overlooked set of deductions are business travel expenses … within reason. You’ll have the mileage expense ($0.56/mile) and get to claim the deductions of up to 50% for food and entertainment (you were going to eat and watch Netflix whether you were traveling or not). Many business owners fail to simply keep track of all their expenses and lose a tremendous amount of money in this – and they neglect to realize that “travel’ can also mean remote or long distance assignments that will take place over many months.
One of the most misunderstood deductions or credits available to business owners and employees is the Health Coverage Tax Credit & Self-employed Health Insurance Deduction. For employees, they can deduct up to 72% of their health care costs, while that number goes to a full 100% for owners. The nicest part of these? Both of them are refundable, meaning that even if your tax bill is 0, you can still generate a refund based on them.
What about true charitable donations of used items? We’ve all taken a carload of stuff to Goodwill, or the Salvation Army, but did we actually keep up with the receipt they gave us? Too many times, the answer is no. Make sure you do, because you are allowed to claim the “fair market value” of those items as a deduction. Of course, even the IRS has a definition of “fair market value” so be sure to discuss it with us, but it’s a useful tool that helps you and helps others. Don’t forget it!
So many things are going on these days, it can be tough to keep track of it all and to select the right path to follow. These are some simple ways to continue to grow and reduce your tax liability at the same time.
I hope this helps and, as always, I am here to help you figure out the best plan for you and your business.
Serious real estate investors don’t rely on intuition—they rely on structured financial strategy to drive decisions and scale efficiently.
Most investors think a property is profitable if: Rent > Mortgage That’s dangerously wrong.
Bad bookkeeping doesn’t show up as an obvious expense. It shows up as: Missed opportunities Overpaid taxes Bad decisions
At some point, your business stops being “simple.” And your bookkeeping setup? It quietly starts breaking.
Taxes are your largest expense as a real estate investor. The difference between average and elite investors? Strategy. Not income.
Most real estate investors don’t lose money because of bad deals. They lose money because they don’t actually know their numbers. And not in a surface-level “I check my bank account” way— but in a true, decision-making, portfolio-optimization way. This single mistake quietly drains cash flow, increases taxes, and prevents scaling. Let’s break it down
If you own between 5–50 rental units, your biggest financial risk isn’t the market—it’s poor tax strategy and bad books.
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Ordinary Income: Ordinary income from investments includes interest, dividends, and rental income. Let's briefly explore each: Interest: If you earn interest from investments like savings accounts, certificates of deposit (CDs), or bonds, that income is generally taxable. It is typically taxed at your ordinary income tax rates, which vary based on your income level. Dividends: Dividends are a company’s earnings distributions to its shareholders. They can be classified as either qualified or non-qualified dividends. Qualified dividends, which meet specific criteria, are subject to lower tax rates similar to long-term capital gains. Non-qualified dividends are typically taxed at ordinary income tax rates. Rental Income: If you invest in real estate and receive rental income, it is generally considered ordinary income and is subject to taxation at your applicable tax rates. However, you may be able to offset this income with eligible expenses, such as mortgage interest, property taxes, depreciation, and maintenance costs. Capital Gains: Capital gains occur when you sell an investment for a profit. The taxable portion of capital gains can be further divided into short-term and long-term gains: Short-Term Capital Gains: If you hold an investment for one year or less before selling it, any profit you make is considered a short-term capital gain. Short-term capital gains are taxed at your ordinary income tax rates. Long-Term Capital Gains: Investments held for more than one year before being sold may qualify for long-term capital gains treatment. At the federal level, the tax rates for long-term capital gains are generally lower than ordinary income tax rates and vary based on your income level. At the state level, while a handful of states tax such gains at a lower rate than the state ordinary income tax rates, most states tax all income, regardless of type, at the same rate. Net Investment Income Tax: In addition to regular income taxes, certain high-income individuals may be subject to the Net Investment Income Tax (NIIT). The NIIT is a 3.8% federal tax on the lesser of your net investment income or the excess of your modified adjusted gross income (MAGI) over a specific threshold: • For single or head-of-household filers, the threshold is $200,000. • For married couples filing jointly, the threshold is $250,000. Net investment income includes interest, dividends, capital gains, rental income, royalties, and passive income from businesses. It is essential to consult with a tax professional to determine if you are subject to the NIIT and how it may impact your tax liability. Strategies to Minimize Investment Income Taxes: While taxes are a necessary part of investing, there are strategies you can employ to minimize their impact: Tax-Advantaged Accounts: Consider investing in tax-advantaged accounts like individual retirement accounts (IRAs), 401(k)s, or Health Savings Accounts (HSAs). These accounts offer tax benefits that can help reduce your overall tax liability. Tax-Loss Harvesting: If you have investments that have decreased in value, you can sell them to offset capital gains from other investments. This strategy, known as tax-loss harvesting, can help reduce your taxable income. Holding Periods: By holding investments for more than one year, you may qualify for the lower long-term capital gains tax rates. Donating Stocks to Charity : By directly donating appreciated stock (that has been held long-term) to charity, you don’t have to recognize a taxable capital gain, but you can still receive a charitable contribution deduction for the fair market value of the stock (if you itemize deductions). This allows for a much greater tax benefit than if you sell the stock and then donate the funds, because you will pay capital gains tax on the gain from the sale!
What Are Cryptocurrency Taxes? Cryptocurrency taxes are the taxes that you owe on any gains or losses that you realize from the sale or exchange of virtual currencies. The IRS treats cryptocurrencies like property, which means that any gains or losses you generate are treated as capital gains or losses (just like when you sell stocks, real estate, or other capital assets). How Do Cryptocurrency Taxes Work? Cryptocurrency taxes work similarly to other capital gains taxes. If you sell or exchange cryptocurrency at a profit, you'll owe taxes on that profit. If you sell or exchange it at a loss, you may be able to deduct that loss to reduce your overall tax liability (although there are certain limitations when claiming capital losses). The amount of tax you owe on your cryptocurrency gains depends on how long the cryptocurrency has been held since the initial acquisition - if you own it for less than a year, your gains will be considered short-term and taxed at your ordinary income tax rate. If you hold it for more than a year, however, your gains will be taxed at the long-term capital gains tax rate, which is generally lower than the ordinary income tax rate. What Do You Need to Do to Comply with Cryptocurrency Tax Laws? If you've invested in cryptocurrency, it's important to understand how to properly report your gains and losses on your tax returns. Here are some steps you can take to ensure that you abide by the law: • Keep Accurate Records - The first step is to keep precise records of all your cryptocurrency transactions. Keeping track of the gain or loss from virtual currency trading is easy if you are using a broker that issues you Form 1099-B (Proceeds from Broker and Barter Exchanges). However, if you don't use a broker who keeps records of your trading activity, you will need to do so on your own. This means that you must keep track of the following: •Purchase Date •Purchase Price •Sale Date •Sale Price Don't forget that sales aren't the only form of taxable transactions. You must report the disposition of a virtual coin if it's sold for cash, traded for another cryptocurrency asset, or used to buy something. It's also important to note that virtual currency splits can create ordinary income, as can airdrops, mining, and staking. • Report Your Gains and Losses on Your Tax Return - When you prepare your tax return, you'll likely need to report your cryptocurrency gains and losses on Form 8949, Sales and Other Dispositions of Capital Assets. You'll also need to include the total amount of your gains or losses on Schedule D of your tax return. • Pay Any Taxes Owed - If you owe taxes on your gains, you'll need to pay them when you file your tax return (and they will be included in your overall tax liability on ALL taxable income). If you don't pay your taxes on time, you may be subject to penalties and interest charges. Conclusion As cryptocurrency continues to become a more popular investment vehicle, it's important to understand how to properly keep track of and report your gains and losses on your tax returns. The IRS is cracking down on these types of transactions, and you don’t want anything to come back and bite you later! As always, if you're unsure how this applies to your specific tax situation, please consult with a tax professional.