“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes”. Supreme Court Justice, Learned Hand
Once you eliminate IRS fear and reduce your chances of an audit, you can be more creative & aggressive with your tax reduction planning. Being creative means to “evolve from one’s imagination, as a work of art or an invention”. Real estate is the greatest arena for creative minds!
Aggressive is “vigorously energetic, especially in the use of initiative”. So when I say that our approach is aggressive we are proposing to lie, steal or cheat. What we mean is taking the initiative to vigorously pursue every legal tax saving idea that you are entitled to. With real estate there are hundreds of these tax saving ideas, just waiting to be used.
The reason “aggressive tax strategies” are perceived as negative or risky is because the person never heard of it. And even where the tax law is gray or controversial; it is in these controversial areas that you can be legally & discreetly aggressive and structure the tax transaction in your favor.
There are over 30 ways to audit proof your return against the IRS. Here are three powerful ways:
- File an extension for your tax return. File as late as legally possible, which typically is October 15 following the tax year. Reasons why extensions reduce audits: A tax return filed around April 15 generally has a greater chance of being audited than one filed on October 15 (the latest possible date). This is because of the IRS computer’s “first come, first serve” system, where returns filed early are more prone to audit. The extended returns may never find its way into the second later “audit” batch slated for examination. Understand, that filing an extension does not postpone the payment of any taxes you owe. This is not its purpose. The purpose is to reduce your chances of an audit, stop the April 15th mad rush and numerous other advantages such as extending the time to make tax-deductible contributions to
certain retirement plans for the prior tax year.
- Avoid Schedule C’s and E’s, file form 1065 (Partnership return). Being conservative about your taxes does not necessarily reduce your chances of an audit; while, on the other hand, being creative & aggressive (see above) does not necessarily increase your chances of an audit, if you know what to do. Just by knowing which tax forms to file (or not to file), you can substantially reduce your chances of an IRS audit!
- Avoid inept tax preparers. One of the biggest reasons why real estate investors (and others) pay too many taxes and are exposed to IRS audits is bad advice from inept or overly conservative tax advisors. An article in Money Magazine revealed that 50 different tax preparers were given the same family’s financial records. The Result: 50 different answers as to what the family’s taxes should be. And we are talking about significant differences as high as 54%, plus the amount of taxes due varied by thousands of dollars. Most erred in favor of the IRS! Money Magazine also did an article titled, “Whose Side Is Your Tax Preparer On?” In many cases, it’s not your side! Unlike doctors, accountants are not formally categorized into various specialties, such as a “Tax Specialist” or a “Real Estate Tax Specialist” .