Collecting Keys - Real Estate Investing Podcast EP 35 - Hacking the System: How to Minimize Your Tax Liabilities
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If you’re just getting started, you may not realize it, but as your business grows, so will your taxes — and they can be a big hit to your revenue. This is why it’s so important to minimize your tax liabilities.
In this episode of Collecting Keys Podcast, we share our tips on how to hack the system and pay as few taxes as possible while accumulating as many assets as you can.
Here are some power takeaways from today’s conversation:
- Don’t be afraid to branch out your business — experience is the best teacher
- Learn to realize when you’re at a loss and walk away
- Accumulate as many assets as you can while reducing your tax liabilities
- Familiarize yourself with 1031 exchanges to further reduce your liabilities
Episode Highlights:
[01:00] Learning From Experience
Mike and Dan have recently launched in a tenth market. This may seem like a big deal, but they explain that once you have the basis of your business, scaling it becomes much easier.
People tend to be afraid to make big changes too early into a business, but Mike and Dan share that even they are learning as they go. The easiest way to start learning things you don’t know is to start having conversations with people who do.
[14:04] Minimizing Your Tax Liabilities
You may not realize it if you’re just starting out, but as you move up the supply chain — especially when moving large assets — taxes can be a big hit to your revenue. This is why it’s so important to minimize your tax liabilities.
Mike and Dan cite taking the most reasonable, minimum salary you can, and using passive losses like depreciation against your passive gains. Listen to the full episode for their discussion on how and why this is effective!
[28:15] The 1031 Exchange
A 1031 exchange is a policy where you sell an asset without realizing any true gains, identifying a new asset, and closing on that one as well. It's a common strategy to avoid capital gains and depreciation recapture.
This is a no-brainer if you’re in the real estate business and always buying and flipping houses. Listen to the full episode for Mike and Dan’s explanation on how to make a 1031 exchange!
Notable quotes from the Episode:
[03:25] “The easiest way to start figuring it out is to start having conversations with people and start shooting your shots.”
[26:43] “At one point, it’s going to cross a threshold where it no longer makes sense to work your W2 job necessarily, because realistically, the tax savings that you're going to get could potentially be more than your total income on your job.
[33:41] “That's the whole game, right? It's trying to figure out how to pay as few taxes as possible while being able to get as much equity, debt, and cash, and accumulate as many assets as you can.”
Resources Mentioned: