Smart Tax Strategies for Real Estate Investors with Amanda Han – Real Estate Women
How can you recharge your wealth and scale your real estate business? Today’s guest has the smart tax strategies for you! Amanda Han has all the background she needs for real estate. Even though her family is pursuing businesses in the real estate industry, she decided to take the traditional route of studying, graduating, and landing a job. She became a CPA which helped her more in the real estate business, where she could focus on expenses and taxes. That knowledge led to successful real estate investments. In this episode, Amanda details what you could write off, especially for your taxes, to gain more savings instead of expenses.
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Smart Tax Strategies for Real Estate Investors with Amanda Han – Real Estate Women
Real Estate Investing For Women
I am excited to welcome back to the show Amanda Han. Both a tax strategist and real estate investor, she helps investors with strategies designed to supercharge their wealth-building using entity structuring, self-directed IRA investing, and income offset opportunities to keep more of what they make. Amanda has a highly rated book, Tax Strategies For The Savvy Real Estate Investor, on Amazon and has been featured in prominent publications including Money Magazine, Talks at Google, CNBC’s Smart Money Talk Radio, as well as BiggerPockets podcast. Amanda, how are you?
I’m doing good. I’m excited to be back.
Thank you so much for offering to be on the show. You are always full of amazing information. I appreciate your time.
I’m excited to be back and talk about everything taxes.
You have been on the show once before, so everybody knows you. Why don’t you give us a high level of how you got into this story?
I am the third generation of real estate investors in my family. My grandparents first immigrated to the USA and invested in real estate. My parents also invested in real estate, although not full-time. My husband and I decided to invest in real estate after several years of working in a large firm in public accounting, where we helped real estate investors with their taxes. It wasn’t until I read Robert Kiyosaki’s Rich Dad Poor Dad book that I realized that’s something that I should do. My job at the time was to help real estate investors save taxes. For some reason, it never dawned on me that that was something I should be doing for myself until I read Robert’s book. That’s how we got started.
It’s fascinating because I’m a legacy investor also. My parents were immigrants and started investing in real estate. Think about that. All these immigrants are coming to the United States, and they have heard from someone else in the world that the way to build wealth in the United States is by real estate. They usually don’t have those opportunities in their own countries. They come here, buy real estate, build wealth, and do amazing things for their families, yet here in America, we’re sometimes a little bit complacent simply because we don’t know how valuable the opportunities are. We take them for granted.
It sounds like Amanda had the same experience as me like, “That was fine for you, but I don’t necessarily want to do that.” We don’t get the value of the opportunities that we have here. My dad was like, “You should get into real estate not as an agent but as an investor.” I was like, “I don’t want to do that. It’s too stressful.” It was funny that you had to get advice outside of your family.
In Robert’s book, he talks about rich dad and poor dad. Those are two different people for him. For me, it was the same because my parents and grandparents, although they did real estate, they always taught me the traditional route, which is, “Get good grades, get to a good college, get a good job.” When I got into one of the largest public accounting firms, it was like, “That’s it. I made it. I have already attained my life’s goal.” They didn’t talk to me or push me in the direction of being a real estate investor. I had to get that from someone else telling me that and then, “Maybe that’s what I should do.”
Investors are always really good about writing off things that are specific to their properties.
I had both from my parents too. They were like, “You have to go to school, get good grades, go to a good university, get a good job.” They also said, “You should be investing in real estate.” My dad had me managing some of his properties, which stressed me out so much as a kid. I was like, “I don’t want to be doing all this stuff,” but he was trying to help. We have that experience as immigrants. For our ladies who are reading this, know that these opportunities are amazing here in America. We don’t get those in other countries. I’m proud of you for tuning in to this show, but we need to take action. Taking advantage of those opportunities is the only thing that’s going to grow your life. I love that story.
When I was growing up, we lived close to my grandparents, and it was the same feeling as real estate. It wasn’t glorious to be a real estate investor. It was more of a hassle because we did our own work during tenant turnovers. I remember I was really young when my grandparents would take my cousin and me out to the properties. When people moved out, we would be there cleaning up and painting. It’s not like, “This is such a cool thing.” It’s something we didn’t want to do, but it’s different for investors now, you don’t have to be doing that stuff.
It’s not glamorous work. People meet me and they are like, “How did you do what you do?” They all think it’s glamorous. This is not glamorous. First of all, it’s the most intuitive thing on the planet. Buying a home and either living in it or letting someone else live in it is the most intuitive business. We all need housing. I do still manage my property. I’m not into painting but I’m hiring somebody. I’m still vetting out my people. It’s not glamorous. What is glamorous is the levels of money that I made and the wealth that I built working for a few hours. Even though I might be there 4, 5 or 10 hours during a turnover, what do I get for that?
I love this conversation because this is important for us to point out. Every job has its glamour factor and the grunge work that has to happen as a tax consultant. Amanda is this beautiful woman with a beautiful voice. She’s running this company. She’s wealthy. She invests in real estate. She’s very successful. There’s a level of glamour around that. She’s still the one that’s punching numbers. That is the non-glamorous piece. Everything that we do in the world is going to have like, “This is awesome,” and “This is the thing that we have to do to make it happen.” Keep that in mind as you think about all these things you would have to do in real estate. First of all, you don’t have to do all those things but no matter what you’re doing, you have to do both sides.
You still wash dishes together, clean the floors, and wipe your babies’ butt when they poop. You do all of those things. There’s the beauty, glamor, romance, and the living life piece. That’s true for everything that we do. Sorry to belabor this but I feel like some ladies need to know it. They want to do the things that are cool but they don’t understand. Not just ladies, this is for everybody. As you are learning something new, you have to do those other things to make the glamorous end result you are looking for. It doesn’t have to be painful, unhappy or any of that, but it’s part of the course. You’re going to need to do things that don’t feel glamorous.
As it relates to the tax side of things, not for me as a CPA but just for investors, a lot of times, people who either hear me speak on a platform like this or read one of our books will say, “I love hearing the stories about how people saved $10,000 or $50,000 in taxes. I want to do that. Does it happen automatically? I read the book, and now I’m going to expect that to happen.” It doesn’t happen that way. The story is the glamour of this is what happened, but what you’re not seeing or paying attention to is what did that investor do during the year so that by next April, when they’re meeting with their tax person, they have everything in place so they can get the tax savings.
Let’s talk about investing and taxes. What can you write off as an investor? Give us some ideas.
When it comes to write-offs, the IRS sees investors as business owners. By business owners, I don’t mean you have to go out and get an LLC, a corporation or anything like that. I mean that you are in the business of investing in real estate. Whether you are a landlord who’s getting rental income, you are in the real estate business. If you are a flipper, wholesaler or even a realtor and you are making money in those activities, you are in the real estate business. You hear people talk about things when they say, “Business owners get all these incentives, loopholes and benefits,” but the vast majority of those write-offs are also available to us as real estate investors because we are business owners. Investors are always good about writing off things that are specific to their properties.
Let’s say you’re a landlord, most people don’t forget to write off their mortgage interest. There’s a lot of money they are paying into the bank, so they are not going to forget that or property taxes you paid to the county, maybe even paying your property manager to manage properties or repairs. People are usually pretty good about those expenses and not missing out on them. What I find that a lot of people miss out on is what we consider overhead expenses. These are expenses you are spending for your real estate business that are not necessarily specific to a property.
Maybe you bought a membership to be in a club or a group like a women’s group or something, or a tax book to learn how to invest in real estate and save taxes. You are driving your car for real estate purposes. Most of us probably use our cell phones, laptops, and all that for real estate. Even though these are things that are not specific to any property, they are for your real estate business as a whole. It’s important to make sure that as an investor, we are tracking and writing off those expenses. We’re all in agreement that tax rates are not going down. If anything, they will stay the same but possibly go up.
As those tax rates go up and you have $100 worth of expenses and save $20 or $30 in taxes, that’s pretty significant. $100 might not seem like a lot but if you are tracking all those throughout the year, then you are talking maybe a couple of thousand dollars or tens of thousands of dollars. That’s when the savings could be significant that you might save enough money for a down payment on another rental property next year.
I love that last piece where you said, “What if instead of paying taxes, we were buying another rental property?” Understand that Amanda and I are not advocating and doing anything that is not legal, but these are things that are legally accessible by us if we pay attention and prep a little bit. It’s never been positioned that way where you could take the money you are not paying in taxes, get a refund or however that shows up, and then turn it into another rental property and opportunity for cashflow.
Let’s say it was $10,000 we paid in taxes. We know what the return on investment is. It is $0.
We got nothing. We get the stuff that the government gives us but we don’t have it personally.
It’s not a surprise that, as real estate investors, we can save on taxes.
If you instead had $10,000 more to invest as a down payment, that could be $50,000 worth of real estate. That could be small property or at least a part of a property. If you do that year after year, they could supercharge how quickly we build our portfolio. A lot of real estate investors I meet oftentimes will say, “I want to get into real estate but I don’t have money to invest. How do we get bank financing? How do I get investors’ money? How do I partner with other people?” Although those are all great ideas and things we need to use as an investor, why not look in our own pockets first? It’s like, “This is the money I’m making. If I can keep more of my earnings, then I already have more money to invest. I don’t have to worry so much as to where am I going to find the money for my next deal.”
Especially for a down payment, you can use that money to invest in another deal. You could also use that money to do a partial or a down payment for several properties or one property in a nicer area. You can make different choices about the business you want to run.
People don’t look at it that way. They are like, “I don’t want to pay the IRS. I’m going to save money.” I have met people who are like, “I got a big refund, now I’m going to go on vacation with that. I’m going to buy something personal.” That’s not the goal. If you save the money and use it to invest in real estate, that new property will give you more write-offs for next year. It’s a compounding effect of saving and investing more so that you can save more and invest more.
Along the way, you are going to be enjoying that cashflow which would be supplementing, and you can partially reinvest that into your business. You deserved that vacation but it is a mindset switch. Amanda and I had the pleasure of meeting in San Diego. We had a boss lady weekend. I met with all these amazing women that are investors in real estate or some iteration. They do something around the real estate investor thing. It was funny because we all carried nice purses. I’m not a purse person, but we had our nice clothes or purses.
We all drive nice cars and have nice homes. Amanda talked about the tents that her kids built right in their cute bedrooms. We have got nice lives. We had met another woman and she was a friend of ours. She had bought a $50,000 ring. That’s certainly her right. If that’s what lights her up and she loves that, that’s awesome. All of us had the reaction of, “That’s another house.”
I love jewelry. My husband bought me another $6,000 ring for our 25th wedding anniversary, but that’s a house. It is a mindset of you should enjoy your life and have things that you love and make you happy, but understand that it’s balancing between our businesses and those things that we think are going to make us happy. We do need our vacations. I’m a choose-bliss person. A big part of bliss is about loving the journey and vacation is a big piece of that, but you should balance that. Use some of that money for investing. If it’s tax-saving money, that is business money. Business money should be reinvested. You can decide.
It’s making that conscious decision and being honest with yourself in terms of what you are doing. Sometimes I’ll meet people who say, “I want to get into real estate investing. I hear all these great things about cashflow, appreciation, and tax savings.” By the next time I see them, they are like, “I was looking at real estate, and then I bought this nice big home for myself. I decide to upgrade. This is like an investment.” It’s being honest with yourself in that, “I didn’t end up buying an investment property. I ended up buying something nice for myself and my family.”
There’s nothing wrong with that, but understanding that the nice large home that you bought is not giving you cashflow. It’s not giving you an additional tax write-off because it’s not a business. It is by understanding the differences between every financial decision you are making, whether that’s more for personal enjoyment or true investment and growing your portfolio.
Do you need an LLC in order to save on taxes?
It piggybacks off of your first question, “What can you write off?” A lot of investors are under the assumption that in order to write-off anything, you have to have an LLC or you have to pay for it from your LLC. That’s not true at all. What I was saying is as real estate investors, we are business owners in the eyes of the IRS. The definition of business is not LLC, S corp, C corp or any of that. It’s whether you are investing in real estate. We have a lot of investors who are landlords who don’t have LLCs. For one reason or another, they choose the whole rentals in their own name, in the trust or something like that.
They can still write off all those same expenses we talked about, a car, home office, cellphone and travel. All those things are tax-deductible. It’s a common myth that people feel like, “I don’t have an LLC yet. Let me go ahead and form an LLC so I can take these deductions,” when more than 90% of the time, those normal expenses can be deducted regardless of whether you have an LLC or if you operate in your personal name. When it comes to taxes, we break it out into two different groups like if you have rental income. That will be rental from single-family, multifamily, commercial, all types of rental income versus the other bucket, which is more active income. Active income will be if you are a realtor, a wholesaler or a fix and flipper.
The reason we have those two different buckets is because taxes are treated differently for those two different types of income. For most landlords with rental income, it doesn’t matter from the tax side whether you have an LLC or not because you don’t pay self-employment taxes. You can write off the same things. For landlords, the reasons for having an LLC would not be for tax. It’s mostly for asset protection purposes. Your attorney might say, “You don’t want to lose all your assets because one of your tenants sue. Let’s put that in an LLC or a partnership to get the liability protection.”
On the other hand, for active income flipping wholesaling, you also have to pay self-employment taxes. Not only do you pay federal and state income taxes, but you are also paying into Social Security and Medicare. That’s another up to 15% tax. That’s where having an LLC or S corporation could help minimize those. It’s difficult to say if you should have an LLC or not, and that investment number two should have one. That’s all based on your unique situation. How much money do you make in real estate? How much other income do you have from a job or a business? That’s something that you want to plan out with your tax person.
For someone who has active income, let’s say you have $100,000 of taxable profit from flipping, wholesaling or as a realtor, if you run it through an S corporation or something similar, you might save up to $7,000 in taxes with the structuring. That’s where it typically makes sense to have an entity. In either situation, you can always write off the same things regardless of whether you have an entity or not.
I loved the clarity on the two different ways that work and how the IRS looks at that. What would you say are the biggest mistakes that real estate investors make when it comes to taxes?
There were quite a few of them. We are talking about entity structuring. There are two big mistakes on the entity structuring side. One is using entity structuring almost as an excuse to delay investing. This is more for newer investors because I do hear this quite a bit like, “I’m going to invest in something,” and then a couple of months later, they will tell me, “I have not invested yet. I could not decide on a name for my LLC.” That’s an excuse to say, “I didn’t do it because I don’t have an LLC yet.” One way to overcome that is to understand you don’t have to have an LLC to buy rental properties. Even if you bought a property now, you can always move the title into an LLC after the fact. We don’t have to worry about that. For a lot of the women investors, it is more of we have to find that perfect name like Blissful Real Estate, LLC.
People get caught up in all that instead of focusing on taking action and doing real estate. The other most common mistake on the entity side is forming the wrong type of entity. That’s one of those things that if you form the wrong entity to hold your real estate and don’t find out until way later that you were in the wrong entity, it becomes very costly to unwind that.
We have seen clients who had owned real estate inside of S corporations for 5 to 10 years. It’s very difficult for them to unwind it because now the property has appreciated. The only way to unwind it is to pay a lot of tax to get it out of the entity’s name into the correct entity. There’s a fine line between not waiting too long to form it, but then also forming it correctly from the start, so you don’t have such costly ways to unwind that structure.
That to me seems a little scary when you think about, “I have to unwind if I screw up.”
Sometimes, you can’t do it. There’s no real way to do it where you don’t have to have taxes. Entity formation is not like a do-it-yourself like, “I was on this podcast. I read this book,” and then you go ahead and do it. It’s something that you want to sit down with your tax advisor and talk through. Some of the questions to answer are not just, where am I buying a property? It’s also, how much is the equity in my property? What’s my exit strategy. Am I just selling it like flipping? Am I going to hold it for 5 or 10 years? What other income am I getting from this property? Is it a long-term rental or short-term? If it’s a larger property, am I also going to have vending machines or a washer and dryer? All these things help determine what type of entity you are going to hold your real estate in. By having that conversation upfront, it helps them minimize the risk of getting into the wrong type of legal entity, to begin with.
The other question we were going to talk about was can we buy rental properties in retirement? The answer is yes. Ladies, you have heard other people talking about self-directed and stuff like that. One of the things that I want to talk to Amanda about is, what are the logistics around that? We got a pretty good high level on the fact that it’s possible and what that looks like, but I asked Amanda to do a breakdown on what that looks like. Amanda, let’s do that in EXTRA.
I have a little different spin for the custodians when they talk about what you can and cannot do. My job is on the step before that, where the investors are figuring out, what type of account is best for you? How do we use that and invest in real estate, and how do we save taxes with the money going in? There are lots to share on that part.
We will do that on EXTRA. We’ll be talking about investing in real estate through retirement funds and from a tax perspective. Before we go into our three rapid-fire questions, let’s talk a little bit about some of the things that you are offering my audience. You do have a free eBook.
We have an eBook. It’s called Tax Strategies For Real Estate Investors. You can find it on our website at KeyStoneCPA.com. It goes a little bit more in-depth in terms of a lot of the things we talked about. We talked about maximizing write-offs and how to take a tax deduction by shifting income to your kids. If you have kids or elderly parents helping you in your business, how do you do that? We talked about entity structuring. In our book, we break down some of the questions and what you should be considering before you meet with your tax person, how to use legal entity structuring correctly, and a lot more stuff. Check it out on our website.
You also have a mini-course for real estate investors specifically. Could you tell us a little bit about that?
It’s an on-demand course for beginner investors. It’s delivered in the course of four days. You can get the content when you have time. We talked about the power of tax savings like how you use tax savings to supercharge your wealth building. We go over the top ten most common tax strategies for all types of real estate investors. We talk about the six-step process like, how do you have an effective tax plan?
Know the main things that you need from the property. If they meet your criteria, then go after it.
It’s not a surprise that as real estate investors, we can save on taxes, but the question is always, “How? What are the things I need to do so that I’m ready for next April?” We also have a risk assessment as part of our on-demand course. Those are a set of questions to help you try to figure out if you are overpaying in taxes. That’s a question we get a lot, “How do I know? Do you think I’m overpaying in taxes?” I don’t know because I don’t know the answers to some of these questions but hopefully, you will, by taking this assessment yourself.
All of that goodness is only $39. Go get that. It’s good stuff. You have to go to BlissfulInvestor.com/AmandaTax. I know that will be helpful. Amanda covers a lot of very good stuff for real estate investors, specifically because she is an investor herself, so she knows what we go through. Amanda, are you ready for three rapid-fire questions?
I think so.
Tell us one super tip on getting started investing in real estate.
I’m a numbers person. The way I look at it is to look at the numbers. If the numbers make sense, then pull the trigger. Don’t overthink it, don’t delay and don’t overanalyze it. Know the main things that you need from the property. If they meet my criteria, then go after it.
What is one strategy for being successful as a real estate investor?
We work with new and advanced investors. One thing that I see across some of my more advanced real estate investor clients is they treat real estate investing as a business. I don’t mean LLCs or set up an LLC. They run it like a business in terms of they have the right teams in place to do the things that they’re not good at. If they are not a good bookkeeper, they have a bookkeeper in place. If they are not good at managing real estate, they have property managers in place. It’s by running that as a business and creating systems around everything you do as you scale your real estate. You don’t have to recreate the wheel every time. Those are the things I see with most successful real estate investors.
I have frequently said that systems equal bliss because they give you freedom. A big piece of being blissful is having the freedom to choose what you do with your time. Systems and teams are key to that. Tell us the personal practice that you do daily that contributes to your success.
It’s not a system. It’s more of a habit. My habit is I don’t have a to-do list. My thing is if I have something that I know I need to do that is important to me, I add it to my calendar directly so that time is blocked off. When the time comes, that’s when I do it. I try to organize and prioritize the things I have to do, but it’s not in the list format. It’s more like, “Get it on the calendar so that it’s done.” I’m a big proponent of that because before, I had a to-do list. They kept getting longer. It’s more to-dos and more to-dos until you don’t have time to look at the to-do list anymore.
Nobody has ever said it that way before. We thank you so much for all that you have offered on this portion of the show. It was awesome.
I’m excited to be here. I’m happy to come back anytime.
Ladies, we do have more on EXTRA. We are going to be talking from a tax perspective all about investing in real estate through your retirement funds. That’s going to be an interesting topic. If you are subscribed to EXTRA, stay tuned. If you are not but would like to be, this may be the time to do it. Go to RealEstateInvestingForWomenExtra.com, and you will get the first seven days for free. Thank you so much for joining Amanda and me for this portion of the show. I look forward to seeing you next time. Remember, goals without action are just dreams. Get out there, take action and create the life your heart deeply desires. I’ll see you soon.
- Tax Strategies For The Savvy Real Estate Investor
- Tax Saving Strategies for Real Estate Investors with Amanda Han – Past Episode
- Rich Dad Poor Dad
- [email protected]
About Amanda Han
Amanda received her accounting degree from UNLV. As a CPA and real estate investor, Amanda has helped countless investors across the nation to supercharge their wealth building through proactive tax saving with her top-selling Amazon books as well as her teachings on prominent publications such as Money Magazine, Google Talks, and CNBC.
Amanda brings over two decades of tax planning and compliance experience from working in Big 4 Public Accounting as well as public and private companies. In her spare time, Amanda enjoys canvas painting, biking by the beach, and seeking out the best hole-in-the-wall dining options where ever she visits.
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Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
While building her multi-million dollar business, she has traveled to over 55 countries, dances every single day, supports causes that are important to her, and spends lots of time with her husband of over 20 years.
She is the international best-selling author of the multiple award-winning books “Choose Bliss: The Power and Practice of Joy and Contentment” and “Real Estate Investing for Women: Expert Conversations to Increase Wealth and Happiness the Blissful Way.”
Moneeka has been featured on stages including Carnegie Hall and Nasdaq, radio, podcasts such as Achieve Your Goals with Hal Elrod, and TV stations including ABC, CBS, FOX, and the CW, impacting over 150 million people.