Anonymity & The LLC: States Where Business Owners Love The Laws

Real estate investors love the liability and asset protection offered by a Limited Liability Company (LLC). Do you know what makes an LLC even better? When it's completely anonymous. Fortunately, some states offer you the chance to escape from unnecessary legal liability in the form of an “anonymous” LLC.

An anonymous LLC protects your privacy and keeps your ownership of the company out of the public record, which gives you more flexibility and security in managing your real estate investments.

If you're intrigued, keep reading. We'll explain everything you need to know about how to hide ownership of a company using an anonymous LLC.

Is the Owner of an LLC Public Record?

Whenever you start a new LLC, you have to file formation documents with a state government entity, often the Secretary of State. In most states, you have to provide the name of the person or entity forming the LLC and a registered agent. The registered agent is the person or entity responsible for receiving legal service and other essential notices on behalf of the LLC. Some states will also require you to list the LLC's manager on the formation documents. 

When you file your LLCs formation documents, they become part of the public record, and anyone can access this information. If you'd prefer to keep this information private, there are several methods you can use to form an anonymous LLC.

Benefits Of Anonymity

With an anonymous LLC, sometimes referred to as a private LLC, the company's owners are not publicly listed in state records, as they would be with a regular LLC. Keeping things anonymous offers a variety of benefits to you and your company. We've listed some of the most valuable advantages of LLC anonymity below.

Maintaining Confidentiality 

Starting an anonymous LLC to hold your real estate investments can help you keep your properties and financial status out of the public eye.

Protecting Privacy

Forming an anonymous LLC allows you to protect your privacy by keeping your name and address off the internet.

Preventing Harassment 

If you keep your identity and address anonymous, you can avoid unwanted harassment from salespeople, competitors, or anyone else who is interested in you or the properties you own.

Frivolous Lawsuit Prevention

The world is full of "professional plaintiffs" and other opportunists who are looking to make a quick buck. Keeping your name off the ownership records for your LLC can help you avoid frivolous lawsuits.

Asset Protection 

Holding your real estate investments in an anonymous LLC can help you shield them from lawsuits and your personal creditors.

How Does An Anonymous LLC Work?

There are a handful of methods you can use to create an anonymous LLC. The easiest way to do it is to select a state that allows you to incorporate anonymously. 

The following states will let you create an LLC without making your name public record:

Establishing an anonymous LLC in any of these states lets you keep your name off the LLC's records. Which state you should choose for your LLC depends on what benefit is most important to you. 

We've listed the most significant small business benefits offered by three of the most popular states below.

New Mexico

New Mexico is the only state that allows you to form an LLC without disclosing the members' names to the government, making it the option that offers the most privacy. 

Delaware

Delaware is well known for its business-friendly laws and doesn't require corporate income tax. You'll only have to pay a $300 franchise tax each year.

Wyoming

Wyoming is one of the most tax-friendly states for anonymous LLCs, with no corporate income tax and annual fees as low as $50.

Forming An Anonymous LLC In Other States

If you want to create an anonymous LLC but don't want to start it in Delaware, Nevada, New Mexico, or Wyoming, you're not out of luck. Property owners can form an anonymous LLC in other states; there are just a few extra steps involved.

First, start an anonymous "holding company" in Delaware, Nevada, New Mexico, or Wyoming. A holding company is a business entity that is created to own other businesses and hold assets. Holding companies usually don't conduct independent business operations; they just profit from the companies and investments they own.

Once you've created your anonymous holding company, you can start an anonymous LLC in any state by simply listing the holding company as the owner. Since no records tie you to the LLC and no records connect you to the anonymous holding company, your ownership interest in the LLC remains private.

Should I Form My LLC Anonymously?

If you're looking to protect your privacy and keep your ownership information out of the public record, the answer is a resounding “YES!” Forming an anonymous LLC will allow you to guard your personal information while shielding your investments from creditors, lawsuits, and harassers. 

 

How To Set Up a Land Trust For Each Investment Property You Own

Setting up land trusts for each investment property you own is essential. One benefit of the land trust is to keep ownership of the property private. This way, the land title office can no longer let the whole world know that you own the property. Many people can enjoy privacy of ownership and do so for a few different reasons. The benefits are below:

Land Trusts Can Help Avoid Moving the Investment Property Title To and From More Than One Name

Although the above five benefits are the main reasons for setting up land trusts for each of your investment properties, doing so can help in other ways as well. One way setting up a land trust for each of your investment properties can help the owner is by avoiding "churning" of the title. Churning means that the title goes through many different hands in a short time period.

The thing about the title going from one hand to the next and the next and so on is that a lender will not think twice about denying lending money for the property. This is because they may think that the title is going through many different hands really fast so as  to make the investment property look like it is worth a lot more than it really is. This is why it is good to set up a land trust for your properties.

How to Set Up Land Trusts for Multiple Investment Properties

You can create land trusts for multiple properties by using two legal documents. Before you start with the documents, first you need to decide the name you are going to be using for your properties. Once you find a trusted friend or family member, you then see a land trust attorney who will draw up a contract that states what is happening and the rights of both parties, you and your land trust.

Once you both look over this document and you both sign it, you then need to record the trustee deed. However, once these two steps are done, the world will no longer be told that you own any of the investment properties you own. Once this is done, you can enjoy all of the benefits mentioned above of using a land trust for each investment property you own.

Find Out if a Land Trust is Legal in Your State

For years now, I’ve been telling people to use land trusts for their real estate investments. Not only does it provide protection from creditors but it also prevents them from using the Uniform Fraudulent Conveyance Act to access your assets. It’s also a great way to discourage would-be litigators from suing you since your name never appears on record that you own anything.

I’ve been talking about the importance of using land trusts for years now. One of the questions I keep getting is: Which "land trust states" will recognize this legal entity?

What States Allow Land Trusts?

Only six states have a land trust statute on the books. These states include:

This doesn’t mean that you can’t form a land trust if you don’t live in these states. Most states without the legal structures in place defer to the Illinois Land Trust statutes to determine validity and case law. Apart from Louisiana, you can hold land in trust in any of the other 49 states and the District of Columbia. This has to be done in accordance with the law of any of the foregoing states given that the beneficiary, trustee, or the property is based there. The states of California, Colorado, Missouri, and Nevada have trust laws that allow trustees to hold title to property for a NAMED TRUST (note that it’s just a trust, not a land trust).

With the guidance of a knowledgeable lawyer, you can actually form a land trust in most states, even in Louisiana. The state still has the old French Civil Laws that will need an expert to navigate. One of the hurdles you might have is getting a good attorney in your state who’s well versed in land trust matters.

How to Go About Setting Up the Land Trust

To start setting up your land trust, deed the piece of property you’re buying to a friendly nominee. Should you run into problems down the road where the title company rejects your land trust, they will be able to recognize the last person in the title – the nominee. Thereafter, direct your nominee to sign a deed directly to your new purchaser. But there’s a catch to this approach – you need to be certain that your nominee will be around for the long haul. This is why you might want to consider a appointing close friend of family member as the nominee.

To avoid problems in future, you might want to have the grantor execute two deeds – one for the land trust (using trust deed language) and the other directly to the grantee. The deed to the grantee is a failsafe to be used if the land trust is found to be defective by your state law.

Interested in learning more? Check out our article The Benefit of Using a Power of Attorney With a Land Trust.

The Personal Property Trust: An Overlooked Asset Protection Tool

Asset protection is a crucial component of financial planning for any real estate investor. There are many tools you can use to keep your property out of the clutches of creditors and would-be-litigants, and we’ve talked about some of them.

While Land Trusts, Series LLCs, and anonymous trusts are some of my favorite tried-and-true asset protection methods, a financial planning tool that doesn’t get as much attention as it should is the personal property trust.

With this article, we're going to change that!

What Is A Personal Property Trust?

In general, a trust is a type of legal arrangement where a trustee holds title to specific property and manages it for the benefit of the trust’s beneficiaries. Trusts can be revocable, which means the trust can be altered or canceled at any time while the person establishing the trust is still alive. They can also be irrevocable, which means they cannot be modified or revoked.

Like a Land Trust or living trust, a personal property trust is a type of revocable trust. Whereas the Land Trust is used to hold real property, the personal property trust is used to hold title to personal property assets such as vehicles, boats and mobile homes.

Whenever an asset needs to be registered and included in public records, you can use a personal property trust to keep your ownership information private. 

Since trustees must manage the trust assets as directed by the trust instrument, you can use a trust to transfer legal ownership and protect your identity while essentially maintaining complete control over the trust property. Generally, the sale of trust property requires approval from the beneficial owner, and the trustee cannot make the decision alone. Naming yourself as the beneficiary of a personal property trust can keep you in control of your assets.

What Are The Benefits Of Putting Your Property In A Trust?

The primary benefit of using a personal property trust is privacy. When you place your assets in a personal property trust, public record registrations will show the trust as the owner instead of listing your name. If you choose a privacy-protecting name for your trust, there will be no indications in the public record that you own the property.

A few additional benefits of using a personal property trust include:

When Should You Use a Personal Property Trust?

As a real estate investor, there are several ways you can take advantage of the protections offered by a personal property trust. Here are a few of the most beneficial ways to use personal property trusts to help keep your real estate investments safe and private.

Mortgages

One of the most common uses of personal property trusts is to hold mortgages, since the ownership information for this type of asset can be found through a public records search. As a real estate investor, you may want to consider creating a separate personal property trust for each property for which you have a mortgage. This strategy will allow you to keep your ownership information private and avoid links between your various properties. 

LLCs

Savvy real estate investors often use an LLC to own real estate directly or name an LLC as the beneficiary of a Land Trust. To add another layer of separation and anonymity to your asset protection strategy, you can use a personal property trust to hold your membership interest in the LLC. 

If you use an LLC as part of your real estate asset protection plan, it’s important to remember that, in most states, LLC membership is included as part of the public record. One way to keep your LLC interests private is to list a personal property trust as the LLC member and name yourself as the trust beneficiary. 

Vehicles

Any vehicle—including cars, trucks, and motor homes—that must be registered with the Department of Motor Vehicles is generally part of the public record, which can make your personal data open to public search. You can avoid this by titling your automobiles to a personal property trust. 

Given its various uses, a personal property trust can be a valuable tool for real estate investors, as well as people who haven’t caught the real estate bug (yet). No matter how you use your personal property trust, it is a practical but often-overlooked component of a successful asset protection plan. When deciding what financial planning tools are best for your real estate investment plan, it’s vital that you seek the input of an experienced asset protection attorney. 

 

The Cost Segregation Study: What STR Investors Need To Know (2025)

Rental Property Depreciation is a killer strategy for reducing taxes.

And short-term-rental (STR) owners need a cost segregation study to reclassify parts of their property from a standard 39-year life to shorter lifespans (say, 5 or 15 years.)

Even as bonus depreciation phases out to 0 percent by 2027, a cost segregation study can still maximize your property’s depreciation benefits.

Let’s take a closer look.

How to Use Rental Property Depreciation to Your Advantage

Rental property depreciation can be a game-changer when it comes to reducing taxes for your short-term rental (STR) business. 

By leveraging strategies like accelerated depreciation, you can take larger deductions in the early years of owning a property, freeing up cash flow and lowering your tax bill. Here’s how it works and why it’s worth considering.

What Is Accelerated Depreciation?

Accelerated depreciation allows assets to lose value more quickly in the earlier years of ownership, rather than spreading the deductions evenly over the property’s lifespan.

Why does this matter?

How Does A Cost Segregation Study Fit In?

The IRS typically allows residential rental properties to depreciate over 27.5 years and commercial properties over 39 years. However, not every part of a property needs to follow this timeline.

Look at it this way. When you buy or construct a property, it includes more than just the building itself. Think about:

If purchased separately, these items could be depreciated over 5, 7, or 15 years. A cost segregation study helps identify these shorter-life assets and accelerates their depreciation, giving you more tax savings upfront.

How Does a Cost Segregation Study Work?

A cost segregation study breaks down the purchase price or construction cost of your property into categories with different depreciation schedules. Here’s the process:

  1. Identify short-life components: Examples include electrical outlets for appliances (5 years) or landscaping improvements (15 years).
  2. Reallocate costs: On average, 20-40% of a property’s components can qualify for accelerated depreciation.
  3. Calculate tax savings: By writing off these assets sooner, you significantly reduce your taxable income in the early years.

What’s Involved in a Cost Segregation Study?

A high-quality cost segregation study includes:

When Should You Conduct a Cost Segregation Study?

Timing matters!

How Much Can You Save?

Let’s crunch the numbers with an example:

Imagine you own a short-term rental valued at $800,000.

Without cost segregation:

With cost segregation:

Now, instead of a flat $800,000 depreciating over 39 years, you allocate $300,000 for accelerated depreciation. This leads to significantly larger tax savings in the first year and beyond.

DIY Cost Segregation Studies—Are They Worth It?

While you can identify some short-life assets on your own, working with a tax professional ensures you get the full benefit of a cost segregation study.


There are two main approaches:

Bonus Depreciation is Phasing Out: Act Now to Maximize Savings

Rental property depreciation, especially when paired with a cost segregation study, is a powerful tool for STR investors. By accelerating depreciation on certain components, you can:

Reap significant tax savings in the early years of ownership

As the saying goes, all good things must come to an end. Under current law, bonus depreciation is being phased out:

If you’re an investor looking to take advantage of this tax-saving strategy, now is the time. The sooner you act, the greater your potential savings before bonus depreciation disappears entirely. 

Want to unlock these benefits? Reach out to a tax professional to see if a cost segregation study is right for your property. The savings could be substantial, so don’t miss this window of opportunity to optimize your cash flow and reduce your tax burden!

BONUS: 12 Common Questions About Cost Segregation Studies

1. What Is a Cost Segregation Study?

Every property is made up of a variety of assets, and each one has a different expected useful life. For instance, tile flooring is much more durable than carpet, right? 

Tax law accounts for these differences and guides how capital expenditures should be depreciated. Using the Modified Asset Cost Recovery System (MACRS):

2. How Are Building Assets Categorized for Depreciation?

A cost segregation study breaks down a property into individual components, assigns costs to each using IRS-approved pricing guides, and places them into different categories based on their depreciation timelines. Here are some common categories:

3. Is Cost Segregation Worth It For Rental Property Investors?

Yes, cost segregation can offer a significant return on investment! While the cost of the study depends on the size and complexity of the property, the benefits often far outweigh the expense. Beyond accelerated depreciation, cost segregation can:

4. What Types of Real Estate Qualify for Cost Segregation?

Cost segregation isn’t just for office buildings or hotels—it can be applied to nearly all types of commercial and residential real estate, including short-term rentals. Popular property types include:

5. Does Cost Segregation Create New Deductions?

No, cost segregation doesn’t create new deductions. Instead, it accelerates existing deductions by shifting them to earlier years of ownership. This lets you take advantage of the time value of money by getting tax savings sooner.

6. Can I Do a Cost Segregation Study Myself?

While cost segregation may seem straightforward, a quality study requires expertise. A professional will conduct a detailed forensic analysis of the property, breaking out assets, assigning costs, and ensuring compliance with IRS rules. This level of precision is key to maximizing your tax savings and minimizing audit risks.

7. When Is the Best Time to Perform a Cost Segregation Study?

The best time to perform a cost segregation study is right after a property is purchased or constructed. This ensures the study accurately reflects the assets in place when the property is first put into service, maximizing your tax benefits from day one.

8. How Far Back Can You Do a Cost Segregation Study?

You can conduct a “look-back” cost segregation study for properties purchased in previous years. This allows you to claim missed depreciation without amending past tax returns by filing Form 3115 to catch up on deductions.

9. Can Cost Segregation Studies Be Used as a Planning Tool?

Absolutely! Cost segregation can be integrated into your tax planning strategy before a property is purchased or constructed. For example, you can:

10. How Does Bonus Depreciation Relate to Cost Segregation?

Bonus depreciation allows you to take an additional write-off for assets with a class life of less than 20 years. It’s a powerful tool that complements cost segregation, as the study identifies assets eligible for bonus depreciation. Under the Tax Cuts and Jobs Act, the bonus depreciation rate was 100% for assets placed in service between 2017 and 2022. This rate dropped to 80% in 2023 and will phase out entirely by 2027. Despite the reduction, cost segregation still provides significant tax benefits.

11. Is Cost Segregation Useful for Renovation Projects?

Yes! While cost segregation is commonly used for newly purchased or constructed properties, it’s also valuable for properties undergoing major renovations. By quantifying and categorizing assets before they’re retired, you can take advantage of the partial asset disposition (PAD) election to write off the remaining value of disposed assets. Renovated assets classified as Qualified Improvement Property (QIP) may also qualify for accelerated depreciation or bonus depreciation.

12. What Is Qualified Improvement Property (QIP) and How Is It Connected to Cost Segregation?

QIP refers to interior improvements made to nonresidential buildings after they’ve been placed in service, excluding structural changes, expansions, or upgrades like elevators. Thanks to the CARES Act, QIP now has a 15-year recovery period, making it eligible for bonus depreciation. Cost segregation helps identify and categorize QIP assets, ensuring they are accurately valued for depreciation purposes. This is especially beneficial for landlords providing tenant buildout allowances, allowing for faster tax savings on these investments.

Deductions for 2025 (Tax Year 2024): A Beginner's Guide

You’ve worked hard to get where you are, and one thing you’ve no doubt learned along the way is that tax season is usually the biggest pain when you’re managing your accounts.

And if you’re not familiar with the deductions you may qualify for that pain is even worse.

Don’t pull your hair out over the confusing (and ever-changing) tax code— just need some help from the right advisors. Then you can lower your overall tax bill and keep more of your hard-earned money.

In this guide, we’ll break down the essentials of tax deductions for tax year 2024 (what you’ll file in 2025). Whether you’re an individual filer, a small business owner, or someone looking to maximize advanced tax-saving strategies, this article will provide you with the tools you need to take control of your taxes.

We’ll start with standard deductions, the simplest way to lower your taxable income. Then, we’ll explore business deductions, which can help entrepreneurs and freelancers save big. Finally, we’ll dive into advanced deductions, perfect for those looking to optimize their finances with more complex tax strategies.

Let’s get started on your path to smarter tax filing in 2025!

Standard Deductions

As usual, taxpayers, including business owners, can choose between standard deductions and itemized deductions when filing their 2024 income taxes. 

(The standard deduction or itemized deductions differ from self-employed business expense deductions. To maximize your deductions across all income types, we highly recommend you get the tax advice you need for your specific situation.)

Many prefer the standard deduction offered by the IRS due to its simplicity. This fixed amount reduces taxable income and varies based on your filing status. The IRS has increased the standard deduction to account for annual inflation. The standard deduction for married couples filing jointly for tax year 2024 rose to $29,200, an increase of $1,500 from tax year 2023. 

For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600, an increase of $750 from 2023. For heads of households, the standard deduction is $21,900, an increase of $1,100.

The standard deduction amounts for tax year 2024 (taxes filed in 2025) and for tax year 2025 (taxes filed in 2026) are as follows:

Filing status  2024 standard deduction  2025 standard deduction  
Single $14,600 $15,000  
Head of household  $21,900 $22,500  
Married filing jointly   $29,200  $30,000 
Married filing separately  $14,600 $15,000 

Business Deductions

The more tax deductions your business claims, the lower your taxable profit—and that means more money in your pocket.

But knowing what’s deductible and following IRS rules is key. Also, you and your CPA need to know the difference between credits and deductions for businesses and how to claim them on your tax return. 

In simple terms, a deduction is an amount you subtract from your income when you file so you don’t pay tax on it. A credit is an amount you subtract from the tax you owe. Here are credits you can claim when you file your taxes this year.

As for business deductions, claiming as many of them as you're entitled to can make a big difference for your bottom line. 

So, the question now becomes …

What Deductions Can Your Small Business Claim?

When totaling up your business expenses, remember these common deductions:

Auto Expenses

If you use a car for business, you can deduct costs like gas, maintenance, and even depreciation. There are two ways to calculate this:

Startup Costs

Getting your business off the ground? You can deduct up to $5,000 in startup expenses the first year. The rest must be spread out over 15 years.

Legal and Professional Fees

Fees for lawyers, tax pros, or consultants are deductible. If the service benefits future years, spread the deduction across the life of the benefit.

Insurance

You can deduct premiums for business-related insurance, including:

Travel

Business trips? Deduct airfare, car expenses, lodging, meals, and even laundry. If you mix business with pleasure, only the business-related costs are deductible.

Interest

If you borrow for your business, the interest is tax-deductible. But if your profits exceed $25 million, only 30% of interest expenses are deductible under current laws.

Taxes

Yep, what you paid in taxes can reduce your tax burden. Certain taxes are deductible, like:

However, federal income taxes on business profits are not deductible.

Education

Training and education expenses that improve your current business skills are deductible. Just make sure it’s related to your existing work—not a new career.

Advertising and Promotion

Deduct the cost of promoting your business, such as business cards, websites, or even sponsoring local events—if there's a clear link to your business.

20% Pass-Through Deduction

If you run a pass-through business (like a sole proprietorship, partnership, or LLC), you may qualify to deduct up to 20% of your net income. This deduction lasts through 2025.

Employee Expenses

Employee salaries, payroll taxes, and benefits like health insurance are fully deductible.

Independent Contractors

The cost of hiring independent contractors, such as bookkeepers or cleaners, is deductible too.

Home Office

If you work from home, you can deduct a portion of your home expenses, like rent, utilities, and maintenance. The space must be used exclusively for business.

Don’t Miss These Additional Write-Offs

Here are some easy-to-overlook deductions:

Maximizing deductions takes careful planning, but it’s worth it. When in doubt, consult a tax professional to ensure you’re getting every tax break your business deserves.

Advanced Deductions

When it comes to working with a tax professional this year, Don’t leave money on the table by working with someone who doesn’t understand advanced strategies for reducing your tax burden.

Many CPAs don’t understand that it's possible to save outside the standard deductions. What are we talking about? 

Things like tax-loss harvesting can offset gains and reduce tax liability. Charitable giving or even setting up a private nonprofit foundation can also help.

The IRS also provides tax incentives for business investments in fixed assets through Section 179 and Bonus Depreciation deductions. Let’s take a closer look at these.

These two deductions are often applied for manufacturing and real estate companies, but they can be creatively applied to many other businesses as well. 

Bonus depreciation requires applying the deduction across all assets within a particular asset class, whereas Section 179 allows for more selective application on an asset-by-asset basis. 

Both deductions must be taken in the tax year when the asset is placed into service. However, Section 179 allows flexibility to defer part of the expense, while bonus depreciation requires a set percentage to be applied.

Understanding the differences between these deductions helps optimize tax benefits. Let’s take a look.

Section 179

Section 179 gets its name from section 179 of the Internal Revenue Code. It allows business owners to write off the full cost of eligible property in the year it is purchased and put into use instead of deducting the depreciation over time.

Note: You cannot take a 179 deduction on property purchased in a previous year, even if this is the first year you used the property for business purposes.

Section 179 Eligibility

Property eligible for the Section 179 deduction is usually tangible personal property (usually equipment or office furniture) purchased for use in your business. If you use property for both personal and business purposes, you can only use a Section 179 deduction if the asset is used at least 51 percent of the time for business. 

Section 179 Deduction Limitations

The total amount of purchases you can write off changes every time Congress updates IRC section 179 of the tax code. For tax years beginning in 2024, the maximum section 179 expense deduction is $1,220,000. 

Section 179 + S Corp

Using a Section 179 tax deduction with your S Corp means you can deduct the full purchase amount of business equipment from your personal taxable income. Since an S Corp is a pass-through entity, when a Section 179 deduction is personally allocated to you from an S Corp or partnership, the income and expense are “passed through” to you, and you claim it on your individual tax return. 

This means any income you earn from your S Corporation will be reduced by your Section 179 deductions, and you’ll only have to pay taxes on the reduced amount. 

Bonus Depreciation

If you can't write off an asset immediately, you have to depreciate it. You deduct a percentage of the value each year until you've written off the entire cost.

It's also possible that you can take off extra for expenses that exceed the Section 179 limit, the first year as "bonus depreciation." 

Starting in 2024, bonus depreciation rates decreased to 60 percent.

Bonus Depreciation Eligibility

Eligible assets extend to farm buildings and land improvements with a useful life of 1-20 years, including certain real estate improvements.

Bonus Depreciation Deduction Limitations

Unlike Section 179, there’s no business income limit, so it's usable even when reporting a business loss.

Combining Section 179 and Bonus Depreciation

You can use both Section 179 and bonus depreciation, especially when near the Section 179 deduction limits. However, state regulations may differ from federal rules, so be mindful of potential complications when filing state tax returns.

By strategically using Section 179 and bonus depreciation, business owners can effectively manage their tax liabilities while maximizing deductions on qualifying assets.

What’s New for Advanced Deductions … According to the Internal Revenue Service



Section 179 deduction dollar limits. For tax years beginning in 2024, the maximum section 179 expense deduction is $1,220,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $3,050,000.Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2024 is $30,500.

Phase down of special depreciation allowance. The special depreciation allowance is 60% for certain qualified property acquired after September 27, 2017, and placed in service after December 31, 2023, and before January 1, 2025 (other than certain property with a long production period and certain aircraft). Property with a long production period and certain aircraft placed in service after December 31, 2023 and before January 1, 2025 is eligible for a special depreciation allowance of 80% of the depreciable basis of the property. The special depreciation allowance is also 60% for certain specified plants bearing fruits and nuts planted or grafted after December 31, 2023 and before January 1, 2025.

—(Source Also see Certain Qualified Property Acquired After September 27, 2017 and Certain Plants Bearing Fruits and Nuts under What Is Qualified Property?)

Get Help, Get Results

Remember: Staying informed about the latest tax changes is crucial to avoid costly mistakes. The choices you make for your business this year will directly impact your tax obligations next year. 

The right tax professionals can help you navigate complex regulations, maximize tax benefits, and align with current tax laws. 

Lower level CPAs may not even know it's possible to save outside the standard deductions, and even more competent CPAs tend to only know about S-Corporations and real estate investing.

What you want is a CPA who earns a high income, just like you, and who has found a way to pay nearly $0 in tax by leveraging advanced strategies. It's even better if they have an MBA and can perform Chief Financial Officer functions. When you work with a CPA at that level, you’ll find lots of ways to save on tax, even if you're a W2 employee (or active 1099) with zero investment experience.

In turn, that improves your cash flow and gives you more cash to reinvest in your business's success and in your long-term strategy for building generational wealth.

2025 IRS Code Updates: Opportunities for the 2024 Tax Year

Let's face it, paying taxes stinks. 

No one likes to think about tax code updates, but the fact is the 2025 tax season is here, things have changed, and you can’t avoid it! 

Failing to plan is planning to fail is a cliche, sure, but it’s the truth. If you don’t work with someone who is familiar with the tax code updates, you’ll leave money on the table now that tax season is rearing its ugly head again. 

There were several tax code updates for the 2024 tax year that W2 (or active 1099) workers and business owners need to know about . 

To help you navigate the murky waters of the 2025 tax season, we compiled a list of the four most important tax code updates from that session. 

Work with your CPA who knows about advanced strategies. Someone with an MBA who can perform Chief Financial Officer functions.  With their help and the information below, you’ll navigate complex tax decisions and make building your financial future seem easy.

#1 Tax Code Updates On Income Brackets

How much you pay in taxes depends on your income and your filing status ( whether you’re single, married, or filing jointly). 

Your income isn’t taxed at a single, flat rate. Instead, it’s divided into tax brackets. You may pay several different tax rates on various parts of your earnings.

The 2024 tax brackets apply to income earned last year (what you’ll report on tax returns filed in 2025):

Tax rateSingle Taxable IncomeMarried Filing Jointly Taxable IncomeMarried Filing Separately Taxable IncomeHead of Household Taxable Income
10%Up to $11,600Up to  $23,200Up to  $11,600Up to  $16,550
12%$11,601 to $47,150$23,201 to $94,300$11,601 to $47,150$16,551 to $63,100
22%$47,151 to $100,525$94,301 to $201,050$47,151 to $100,525$63,101 to $100,500
24%$100,526 to $191,950$201,051 to $383,900$100,526 to $191,950$100,501 to $191,950
32%$191,951 to $243,725$383,901 to $487,450$191,951 to $243,725$191,951 to $243,700
35%$243,726 to $609,350$487,451 to $731,200$243,726 to $365,600$243,701 to $609,350
37%$609,351 or more$731,201 or more$365,601 or more$609,351 or more

#2 Standard Deductions Increase For Everyone

The standard deduction allows you to save money on taxes by reducing your taxable income. The standard deduction for married couples filing jointly for tax year 2024 increased to $29,200, $1,500 more than tax year 2023. 

For single taxpayers and married individuals filing separately, the standard deduction is $14,600 for 2024, an increase of $750 from the previous year.

For heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100.

You can also leverage standard deductions by paying your children to work for you (up to the standard deduction amount). Here are some general rules that you should follow if you have children who can work for you: 

Read our article Hiring Your Children Has Monumental Benefits: Decrease Taxes, Increase Profits. It gives you an in-depth look at how you can hire your children, claim an expense for your business, and keep your wealth within your family. 

#3 Safeguard Your Health And Money With HSA Contributions

You can reduce your taxable income by contributing to a health savings account. This account helps you pay for medical expenses. 

The deductible contribution increased to $3,650 from $3,600 for a single person. For families, the HSA deductible went to $7,200 from $7,300. 

Health Savings Accounts (HSAs) are a smart way to save money for medical expenses. Why? Because the money you put in—and use for qualified medical costs—is tax-free.

Before contributing to an HSA, you must meet these requirements:

  1. You’re enrolled in an HSA-eligible health plan.
    • For 2024, this means:
      • A deductible of at least $1,600 (self-only) or $3,200 (family)
      • An out-of-pocket max no higher than $8,050 (self-only) or $16,100 (family)
  2. You don’t have conflicting coverage.
    • This includes non-HSA-eligible health plans or a full-purpose health care Flexible Spending Account (FSA).
  3. You’re not enrolled in Medicare.
  4. You’re not claimed as a dependent on someone else’s tax return.

One more “catch”: You can’t contribute unlimited amounts. The IRS sets a cap on how much you can contribute to your HSA. This limit includes contributions made by both you and your employer.

For example, if your 2024 HSA limit is $4,150 and your employer adds $1,000, you can only contribute $3,150. However, if you’re 55 or older, you can also make an extra $1,000 catch-up contribution.

2024 HSA Contribution Limits

Here’s what determines how much you can contribute:

#4 Tax Code Updates Means More Money For Your Family  

The 2024 lifetime estate and gift tax exemption surged from $12.92 million to $13.61 million (double for married couples). This shields most people from having to pay federal gift tax.

But if you DO have to pay … For 2024, the annual gift tax limit is $18,000. ( up $1,000 from 2023 since the gift tax is one of many tax amounts adjusted annually for inflation.)

That means you can give your child $18,000 (or $36,000 for couples) to each child, grandchild, or person without filing taxes on the gift.

Key Takeaways

No one wants to think about paying taxes before taxes are due. But, you should plan to keep more money in your pocket and out of Uncle Sam's coffers. 

To hold onto your nest, you must stay abreast of the tax code updates that may affect you in 2025. 

Some critical updates that may affect you as a real estate investor include the changes to:

Tax, Investing, and Legal Strategies for Medical Professionals

High-earning medical professionals eventually learn a hard lesson:

The more they earn, the more they pay in income taxes.

And since physicians and other medical professionals rank among some of the highest-paid individuals in the United States, they need tax planning and investment strategies that will protect their assets and build real generational wealth they can pass to their children and grandchildren.

Hard-working doctors and other healthcare pros can take advantage of all the tax deductions, tax credits and tax exemptions that Congress and the Internal Revenue Service (IRS) make possible to reduce their taxable income.

But there are also lesser-known strategies which, when leveraged correctly, can reduce your tax burden and deliver a sound financial plan that gives you what we call “time freedom.”

These include:



✅️ Setting up an S-Corporation and a Solo 401(K)
✅️ Setting up a 501(C)3 Non-Profit Private Foundation and investing in cash flow deals 
✅️ Investing your tax savings in Short-Term Rentals or syndication deals that offer bonus depreciation

Here I’ll introduce some of the tax, investing and legal strategies our medical professional clients use.

Tax Strategies for Medical Professionals

As a busy healthcare professional, you work hard to provide quality care to your patients, juggle administrative work, and balance your work with life and demands at home. 

That’s why working to optimize your tax situation is probably not at the top of your priorities.

Deep down, however, you know that tax planning should be a key component of your wealth management strategy.

If you are employed by a hospital, a private practice, or a government healthcare department, you’re probably a W2 worker. W2 employees are taxed on gross income first, meaning the IRS takes their cut before you receive your paycheck.

But if you’re a business owner or investor (with the correct structures in place), you can pay the IRS quarterly on your net income after expenses. 

To put it another way, when investing through a properly structured entity, your investment income gets the same tax treatment as a business. This allows you to use your money before deducting taxes. 

If you’re like most of our clients, you've been told there isn't much you can do to lower your taxes beyond taking deductions or using retirement vehicles like 401ks and IRAs. 

This simply isn’t true.

That’s why finding the right CPA to work with is so crucial. You need someone who knows what they’re talking about. It's important to understand there are different tiers of CPAs:

Many CPAs don’t understand that it's possible to save outside the standard deductions. A high-level CPA is someone who earns a high income themselves, someone who has personally found a way to pay nearly $0 in tax by leveraging advanced strategies. 

The right CPA helps our medical professional clients achieve and maintain tax rates in the 0-10% range. This accelerates your overall cash flow and net worth.

If you find a CPA with an MBA and who can perform Chief Financial Officer functions, even better— these folks will be able to help you navigate complex tax decisions and make it seem easy.

When you work with that level of CPA, you'll start to find creative (but completely legal) ways to save taxes, even if you're a medical professional with zero investment experience. And that savings can be invested in equally creative, equally overlooked ways.

Such as …

Investing Strategies For Medical Professionals

The median wage for medical professionals (everything from dental hygienists, physicians and surgeons, to registered nurses) was $80,820 in 2023—much higher than the median annual wage (for all occupations) of $48,060. (Source)

However, at a certain point these high-salary professionals realize they need to take steps to shelter their income from overtaxation. And while saving money on tax is important, but the real magic happens once our medical professionals start re-investing those tax savings into tax advantaged deals.

These include:

Private Foundations

A Private Foundation is a self-funded nonprofit organization that shelters income, allowing you to bypass traditional capital gains tax and take advantage of a much lower excise tax rate.

When using the Private Foundation for income sheltering and high-performance investments, the compounding effect can lead to much better returns than traditional investing.

The Private Foundation can even  replace your W2 income with a director’s salary for managing the Foundation.

Depreciation Deals

Bonus depreciation is a tax incentive designed to stimulate business investment by allowing investors to accelerate the depreciation of qualifying assets, such as equipment, rather than write them off over the useful life of the asset. This strategy can reduce a company's income tax, which in turn reduces its tax liability.

Medical professionals can claim accelerated bonus depreciation as a limited partner when investing passively into a real estate syndication. As a limited partner (LP) passive investor, you get a share of the returns based on how much you invest. 

Similarly, you get a share of the tax benefits as well, as documented by the Schedule K-1 you would receive each year. The K-1 shows your income for a particular asset. In many cases, particularly in the first year of the investment, that K-1 can show a loss instead of an income.

The magic of the K-1 is that it includes accelerated and bonus depreciation. In other words, even while you’re receiving cash flow distributions, the K-1 can show a paper loss, which in most cases means you can defer or reduce taxes owed on the cash flow you’ve received.

Cash Flow Deals

These deals don't offer tax benefits, but can generate so much income that they outperform potential tax savings. Investments in this category include things like algorithmic trading. You can invest in cash flow deals through a tax shelter, such as your Private Foundation, to get the initial tax savings as well as tax advantaged portfolio growth.

Legal Strategies For Medical Professionals

Estate planning is something everybody needs to do at some point. Lawsuits can happen to anyone, and high-net-worth medical professionals are especially at risk. All it takes is a car accident, an injury on your property, a contractual disagreement—and once somebody knows what you own, they can hire a good attorney to force you to settle out of court. 

The way you protect yourself is to set up asset protection. Holding companies can shield anything of value, such as real estate properties and investments. Operating companies can be established for  business activities like collecting rent, paying contractors, and signing contracts.

Trusts are a way to guarantee anonymity across all of your entities and assets. They allow you to look like a beggar on paper and transfer your assets anonymously to your heirs, taking the target off your back.

Here are a couple of other legal structures we help our clients set up:

S Corporations

Independent doctors or physicians can create S Corporations to handle their taxes. Unlike regular corporations (where profits get taxed twice), S corporations pass their income, losses, and deductions directly to their owners. An S Corp, or S corporation, is a “pass-through” entity, which means that the profits and losses of the business are passed through to the individual owners and are taxed at the owners’ personal income tax rates. 

Instead of paying corporate taxes, each owner reports their share of the business’s money on their personal tax returns, paying taxes at their individual rates.

Solo 401(K)

What about retirement?

If you are a medical practitioner who works as an independent contractor, The Solo 401(k) is an ideal retirement plan because it lowers your taxable income and enables you to build up retirement funds through high contribution limits and almost limitless investment capability. 

The Solo 401(k) is a qualified retirement plan, just like hospital-sponsored plans. You can contribute to the plan on a tax-deferred basis. You can also contribute Roth funds to the plan and invest tax-free. With some of the highest contribution limits, the Solo 401(K) lets medical professionals lower their taxable income and grow their retirement quickly. 

To Wrap It Up …

Even medical professionals with no investments need entity structuring. Here is what a full legal diagram could look like, which includes asset protection structures, estate planning, and tax shelters.

As you accelerate your tax and investing approach, it's important to add in measures to prevent a catastrophic reset. We can show you how to save $20k or more in taxes during the first year, but you will want to set up additional tax and legal structures over time to continue to reduce your taxes down to the 0-10% range. 

Without entities, this would be impossible.

It's also important to protect yourself from catastrophic events, no matter how unlikely, so that you don't have any major setbacks on your journey to time and financial freedom.

Tax, Investing, and Legal Strategies for Tech Professionals

Tech industry professionals thrive on innovation, cutting-edge technology, and rapid growth.

However, navigating the world of personal finance requires a different set of skills. 

Whether they're W2 employees or entrepreneurs, experienced tech professionals can earn lucrative compensation packages, which unfortunately means significant tax liabilities. That’s why they have to optimize tax strategies and get professional help navigating complex tax laws. 

Or if they own a business or have exited a business, our capital gains page can help (if they made a ton of money in their exit and are looking for tax strategies to offset that).

The unique financial challenges faced by tech workers call for tailored tax, investing and legal strategies to help you make the most of your wealth. These include:


✅️ Investing in cash flow deals (like algorithmic trading).
✅️ Creating a 501(C)3 Non-Profit Private Foundation to shelter up to 30% of your income
✅️ Setting up an S-Corporation for any side gigs and leverage the Augusta Rule

Navigating the world of taxes can be daunting, especially for tech workers with complex compensation packages, stock options, and freelance gigs. With the right strategies, however, you can make an informed decision about the best steps to take to secure your financial future.

Let’s get started.

Tax Planning for Tech Professionals

Equity compensation, a high income, remote work (where your employer is in another state with different laws) … These can make tax planning for tech professionals quite complex.

You have to take a lot into account.

Different types of equity compensation have different tax treatments. For example, Restricted Stock Units (RSUs) are taxed as ordinary income upon vesting. Incentive Stock Options (ISOs) may qualify for preferential tax treatment if certain holding periods are met. Non-Qualified Stock Options (NSOs) are taxed as ordinary income upon exercise. But exercising ISOs can trigger Alternative Minimum Tax (AMT) liability.

Lost yet? It can get pretty confusing very quickly.

I believe a solid wealth management strategy starts with tax planning. Remember: salaried (full-time) tech workers are taxed on gross income first, with the IRS taking their cut before you receive your paycheck.

Compare this to business owners and investors (with the correct structures in place), who pay the IRS quarterly on their net income after expenses. 

When you (as a full-time employee) invest through a properly structured entity, your investment income gets the same tax treatment as a business. This allows you to use your money before deducting taxes. 

Tech professionals early in their careers may benefit from Roth conversion strategies, paying taxes now on traditional retirement accounts to enjoy tax-free growth and withdrawals in the future. This isn't nearly as strong as the foundation or depreciation deals, however.

But if you’re like most of our clients, you’re further along in your career, making a good salary, and you've been told there isn't much you can do to lower your taxes beyond taking deductions or using retirement vehicles like 401ks and IRAs. 

High earners in the tech field spend years growing their career and growing their income. The more they make, the more it hurts to see 20-30% of earnings yanked away by the IRS.

I have good news for you: The right CPA can show you how to layer tax strategies to dramatically cut your taxes and even reach the 0-10% range, depending on how aggressive you decide to go.

(Here's the catch: To achieve 0-10%, you actually have to implement all the tax strategies. That's like eating your veggies, nobody wants to do it.)

Many CPAs don’t understand that it's possible to save outside the standard deductions. Things like tax-loss harvesting can offset gains and reduce tax liability. Charitable giving or even setting up a private nonprofit foundation can also help.

A high-level CPA will be able to help you navigate complex tax decisions and make it seem easy. They can find creative (but completely legal) ways to save taxes. And that savings can be invested in equally creative, equally overlooked ways.

Such as …

Investing Strategies For Tech Professionals

After implementing all the best tax strategies, our tech clients then focus on investing their tax savings into tax-advantaged deals. There are tons of deal types, but there are two categories of investments you really need to know about:

Tech pros need to know about e three "financial freedom" strategies they can avail themself of:

The first two are short-term strategies. You can save taxes with Royal Legal's tax strategies (and you may still use a foundation, but only as one of many tools to capture tax savings) and you can generate cash flow with something like algorithmic trading.

Creating a nest egg requires a longer-term strategy. Putting money into your own foundation, THEN investing in cash flow deals is the strongest possible move—as long as you don't want to have a bunch of cash on hand. Because once it's in the Foundation, it's no longer yours. We endorse this strategy because that's the best possible move for anybody interested in achieving financial freedom.

Legal Strategies For Tech Professionals

Software executives, Saas founders, and other tech professionals have giant targets on their back when it comes to frivolous lawsuits.

All it takes is a car accident, an injury on your property, or a contractual disagreement—and once somebody knows what you own, they can hire a good attorney to pressure you until you settle out of court. 

The way you prevent this is to set up asset protection before you get sued.

Anonymity across all of your entities and assets is key. Holding companies are where you should place your assets. This could be things like real estate properties or other investments. Anything of value that could be exposed during a lawsuit is important to protect. Operating companies run everything.

So here's what you'll be doing:

#1. Set Up a Holding Company

This is what "holds assets," typically anonymously. There are three kinds:

#3. Set Up an Operating Company

This is what does your "operations." Collecting rent, paying bills, performing key functions and transactions. This is what turns into the S-Corp because the money is flowing through (but not held inside for very long) this entity, which allows us to apply tax strategies to it.

In this case, you are mixing both. So you would want to differentiate…

Entity structuring means creating LLCs so your assets are held anonymously and separate from your high risk business transactions. We recommend a holding company for any investments or assets. Then a separate operating company for business transactions, such as your consulting side gig. When the operating company reaches $75k/year income, you should turn it into an S-Corp. etc…

PS - The $75k range (sometimes as low as $50k) is basically where you start to save money on taxes.

The reason it takes until then is that the S-Corporation requires a separate tax return and payroll, which both cost money in the $1-2k range. So it doesn't really pay for itself until a certain income threshold.

Unlike C Corps (that face corporate taxes and then shareholder taxes on dividends), S Corps allow shareholders to pay taxes only at their individual income tax rates, simplifying the process. S Corps split profits into wages and distributive shares, the latter of which is not subject to self-employment taxes. This distinction can provide considerable savings on the Social Security and Medicare tax burden.

We’ll also help you employ different types of trusts to create anonymity at the County Recorder and Secretary of State offices, as well as during probate (so you look like a beggar on paper and can transfer your assets anonymously to your heirs).

My team can show you how to save $20k or more in taxes during the first year, and additional tax and legal structures will  continue to reduce your taxes down to the 0-10% range. Without entities, this would be impossible.

Here’s a 20-year forecast that shows how the right combination of tax strategies, investing and corporate entity structure can grow your wealth:

Protect yourself from lawsuits with estate planning, no matter how unlikely you think they are, so that you don't have any major setbacks on your journey to time and financial freedom.

The Path From High Tech To Financial Freedom

You’ve worked hard your entire life. It’s time to gain control over your time and money. Rapidly achieving true freedom requires a good tax and investment strategy.

We help tech executives and other professionals in the digital space save $20k or more in taxes during the first year—then re-invest that tax savings into turnkey properties, ATMs, self-storage syndications, apartment complex rehabs and more. We help them create the right tax and legal structures to continue to reduce your taxes and create true anonymity to protect their money.

In the end, we can help you:

Tax, Investing, and Legal Strategies for W2 Employees

Not-so-fun fact: As a W2 employee, you are taxed at a rate higher than businesses and investors.

In fact, no group in America pays more taxes than high-salary wage-earning W2 employees. 

Whether you are a medical professional, a tech professional or any other full-time employee for a U.S. company, there are some little-known ways you can jumpstart your tax savings and investment journey.

They include:


✅️ Setting up a 501(C)3 nonprofit Private Foundation and invest in high-performance depreciation and cash flow deals
✅️ Finding general partner investment opportunities in energy and machinery to get bonus depreciation
✅️ Investing in Short-Term Rentals and using Cost Segregation and the STR Loophole

Let’s take a look at these tax, investing and legal strategies for 9-to-5’ers so you can make an informed decision about the best steps to take to secure your financial future.

Tax Strategies for W2 Employees

Tax planning is a key component of a solid wealth management strategy. Remember: W2 employees are taxed on gross income first, with the IRS taking a portion before you receive your paycheck.

In contrast, business owners and investors (with the correct structures in place) pay the IRS quarterly on their net income after expenses. 

When you (as a full-time employee) invest through a properly structured entity, your investment income gets the same tax treatment as a business. This allows you to use your money before deducting taxes. 

If you’re like most of our clients, you've been told there isn't much you can do to lower your taxes beyond taking deductions or using retirement vehicles like 401ks and IRAs. That’s why finding the right CPA to work with is so crucial. You need someone who knows what they’re talking about.

The right CPA can help W2 earners leverage tax strategies to achieve and maintain tax rates in the 0-10% range. This accelerates your overall cash flow and net worth.

Many CPAs don’t understand that it's possible to save outside the standard deductions. A high-level CPA is someone who earns a high income themselves, someone who has personally found a way to pay nearly $0 in tax by leveraging advanced strategies. 

If you find a CPA with an MBA and who can perform Chief Financial Officer functions, even better— these folks will be able to help you navigate complex tax decisions and make it seem easy.

When you work with that level of CPA, you'll start to find creative (but completely legal) ways to save taxes. And that savings can be invested in equally creative, equally overlooked ways.

Such as …

Investing Strategies For W2 Employees

W2 employees spend years growing their career and growing their income. At a certain point we have plenty of income but 20-30 percent of it is being sucked away by the IRS.

Saving money on tax is important, but the real magic happens once W2 earners invest their tax savings into tax-advantaged deals.

There are tons of deal types, but the top asset classes include real estate, syndications in energy or machinery, and algorithmic trading. In short, deals can do three things:

In general, there are two categories of investments you should be looking at...

Depreciation Deals

Cash Flow Deals

These deals don't offer tax benefits, but can drive so much income that they outperform the tax savings. Investments in this category include things like:

One of the top strategies is to invest in cash flow deals through a tax shelter, such as a 501(C)3 Non-Profit Private Foundation, to get the initial tax savings as well as tax advantaged portfolio growth.

You see, there are three "financial freedom" strategies at a high level:

  1. Save on taxes (typically this year)
  2. Generate more cash flow (typically this year)
  3. Create a nest egg so you can retire as fast as possible

#1 and #2 are short-term strategies. You can accomplish #1 with Royal Legal's tax strategies (and you may still use a foundation, but only as one of many tools to capture tax savings) and you can accomplish #2 with a good cash flow deal (algorithmic trading, for example).

#3 is a longer-term strategy. Putting money into your own foundation, THEN investing in cash flow deals is the strongest possible move—as long as you don't want to have a bunch of cash on hand. Because once it's in the Foundation, it's no longer yours.

So when we endorse this strategy, it's because that's the best possible move for anybody interested in #3 - achieving financial freedom.

Legal Strategies For W2 Employees

As you accelerate your tax and investment approach, it's important to incorporate asset protection and legal strategies into your plan. The Royal Legal approach for W2 earners lets you:

Even a W2 employee with no investments needs to set up legal support. Everybody needs an estate plan, not just for their kids but also in case they become incapacitated and need someone to help make medical and financial decisions (ex: car accident, COVID, etc...).

Setting up an LLC, even as a small consulting or investing firm, can give you options to a big range of new strategies.

Once your LLC hits the $50-75k income mark, the S-Corp election becomes your best friend.  S Corps utilize pass-through taxation, meaning income and losses "pass through" the company directly to the shareholders. 

Unlike C Corps (which have corporate taxes and then shareholder taxes on dividends), S Corps allow shareholders to pay taxes only at their individual income tax rates, simplifying the process.

For businesses generating between $75,000 and $250,000 in profits per owner, electing S-Corp status can offer significant savings. While LLCs face self-employment taxes on all profits, S-Corps split profits into wages and distributive shares, the latter of which is not subject to self-employment taxes. This distinction can provide considerable savings on the Social Security and Medicare tax burden.

The S Corps elections also means you can write off business expenses such as equipment, work meals, travel and more. For example, you can depreciate vehicles—80% if under 6,000 lbs or 100% if over 6,000 lbs.

You can even pay your kids to work, typically up to around $14k/year. They avoid income tax and you avoid having profit taxed at your normal income tax rate. Win/win!

There’s a Path to True Financial Freedom For W2 Employees

You’ve worked hard your entire life. It’s time to gain control over your time and money. Rapidly achieving true freedom requires a good tax and investment strategy.

We can show full-time, W2 workers how to save $20k or more in taxes during the first year. Then we give you access to high performance deals and model out different investment options so you can see the best path to rapidly achieve your financial goals.

The Private Foundation. Oil & gas syndications. Machinery deals. And short-term rentals. These are your best options as a W2. The list of deals that outperform traditional stock market investments (and sometimes provide additional tax benefits) is long.

Take a look at a typical 20-year plan that includes asset protection structures, estate planning, investing and tax shelters:

Kamala Harris Capital Gains Tax: Changes To Expect (Jan. 2025 Update: Well, That Didn't Happen!)

Jan. 2025 Update: Well, the U.S. Election went the other way. Whatever your feelings about it, here are some things to expect from the incoming Trump administration regarding capital gains:

Donald Trump wants to make the tax cuts in his 2017 tax law permanent and lower federal income tax rates for individuals. Trump hasn't said much about long-term capital gains tax, although he floated the idea of a temporary capital-gains tax holiday.

Project 2025, designed for the next Republican administration and spearheaded by the Heritage Foundation, suggests two changes to the capital gains tax. First, the plan calls for a 15% top long-term capital gains tax rate, down from 20% now.

Project 2025 supports the idea of indexing capital gains for inflation each year, meaning taxpayers would be able to increase their tax basis in capital assets by the rate of inflation between the purchase date and time of sale.

Here's an example from Kiplinger: If you bought stock in 2010 for $10,000 and sold it in January 2024 for $35,000, you would have a $25,000 long-term capital gain ($35,000 - $10,000).

This is not including inflation indexing. With indexing, your tax basis in the stock would jump to $13,740, making your capital gain $21,260 ($35,000 - $13,740), lowering your tax bill.

Indexing capital gains involves several factors that individuals and investors need to be aware of:

  • Using the appropriate inflation index
  • Tax basis isn't always static for investments such as reinvested dividends, so the calculation can get complicated
  • Higher-income individuals stand to benefit the most

Original Article below ....

Despite campaign promises, Congress changes the tax code—not the president.

And given the current political climate, we can expect legislative debate when the Tax Cuts and Jobs Act sunsets at the end of 2025.

Still, Kamala Harris has supports changing the way capital gains are taxed, so I’d like to talk about how those changes affect us as investors.

As a reminder, capital gains tax is applied to the profit earned when an asset, such as stocks or property, is sold at a higher price than it was originally purchased. This tax primarily affects middle- to high-income earners who have investments in various assets. 

Under current tax policies, capital gains are taxed only when gains are "realized" — that is, when the asset is sold and the profit is confirmed.

For American W2 employees and 1099 earners with high incomes, this tax represents a critical component of financial planning. Avoiding a significant tax bill when liquidating assets is crucial to building and preserving wealth.

Expected Capital Gains Tax Rates for 2025

Under Kamala Harris’s tax proposals, the capital gains tax landscape will shift substantially for high-income earners. A new long-term capital gains rate of 28% could apply to individuals earning over $1 million annually. This adjustment is a significant increase from the current top rate of 20%, making it more important than ever for high-income earners to understand how to use legal structures to protect their assets. 

Harris's Broader Economic Goals and Tax Policy Objectives

Harris’s tax policy proposals aim to generate revenue for social programs, promote wealth redistribution, and stimulate the economy for low- to middle-income families. These objectives are part of a larger fiscal policy effort to address wealth inequality and expand benefits for working families.

To fund these initiatives, the plan includes raising corporate and high-income individual taxes. The proposed policies align with Harris’s broader economic vision of using tax policy as a tool to level the economic playing field while still promoting growth through targeted credits and exemptions.

Key Capital Gains Tax Changes for High-Income Earners

Increased Taxes on Capital Gains for the Wealthiest

For those with an annual income over $1 million, the proposed capital gains tax rate would rise to 28%, marking one of the highest rates in recent history. This change would specifically impact high-income households, making it important for these earners to plan around the new rate. Harris also supports raising the net investment income tax (NIIT) from 3.8% to 5% for top earners, increasing the overall tax burden on investment income.

Introduction of a Minimum Tax on High-Net-Worth Individuals

A significant component of Harris’s proposal includes a 25% minimum tax on ultra-high-net-worth individuals with over $100 million in assets, covering both realized and unrealized gains. This policy focuses on wealth accumulation that may otherwise escape taxation under traditional income tax structures. While some experts express concerns about the technical aspects of taxing unrealized gains, Harris argues it is a necessary step toward addressing economic inequality.

Corporate and Business Tax Adjustments

The Harris tax plan also targets corporate taxation. Her proposal includes raising the corporate income tax rate, increasing taxes on stock buybacks, and expanding global intangible low-taxed income (GILTI) regulations. These measures aim to ensure that corporations contribute their fair share, offsetting the high-income earners’ tax relief while preventing tax avoidance by companies with substantial foreign earnings.

These changes could indirectly affect high-income individuals who rely on dividend-paying investments. Understanding the full impact on corporate taxation is key for those in high income brackets, as adjustments could influence corporate profits, stock valuations, and, consequently, the value of investment portfolios.

Changes in Inheritance and Estate Tax Policies

Harris proposes changes to the treatment of unrealized gains upon inheritance. The current “step-up in basis” provision, which allows inherited assets to be valued at their current market price (thus avoiding capital gains tax), would be adjusted. 

Under the Harris plan, unrealized gains would be subject to taxation at the time of inheritance, potentially reducing the wealth passed down and increasing tax liabilities for beneficiaries.

For estate planning purposes, high-net-worth individuals may need to reassess how they transfer assets to future generations. The policy is aimed at ensuring that large estates contribute more in taxes, though it includes exemptions for smaller estates.

Expanded Tax Credits and Social Incentives

Aside from changes to the way capital gains are taxed, Harris is proposing the following tax changes:

Increased Child Tax Credit (CTC)

Harris plans to expand the Child Tax Credit (CTC), particularly for families with newborns. This increase is part of a broader effort to support low- and middle-income families. For high-income earners with children, these expansions could provide additional tax benefits.

Permanent Earned Income Tax Credit (EITC) Expansion

Harris proposes a permanent expansion of the Earned Income Tax Credit (EITC), which primarily benefits low-income workers, particularly those without children. While this credit is not targeted at high-income earners, it represents a shift toward policies that support economic security for a broader population.

First-Time Homebuyer Credit

A tax credit for first-time homebuyers is also on the table, aimed at assisting new homeowners in building equity and long-term wealth. This incentive aligns with Harris’s broader economic goals by enabling more Americans to build financial security through homeownership.

Projected Economic and Revenue Impact of the Harris Plan

Nobody has a crystal ball, but we can make some educated guesses about how these changes might affect our investment strategies as well as the economy overall:

Economic Growth Concerns

The proposed increases in capital gains and corporate taxes may slow economic growth in the short term. Economists project a possible decrease in GDP and employment as a result of higher costs for businesses. However, Harris’s team argues that the benefits of redistributing wealth and funding social programs will outweigh these impacts over time.

Revenue Projections and Impact on National Debt

Harris’s tax plan is projected to generate $4.1 trillion in revenue over a decade, even after accounting for various tax credits. This revenue is critical for funding the proposed social programs and reducing the federal deficit. However, the expected economic slowdown could partially offset these revenue gains, resulting in a net revenue increase of approximately $642 billion over ten years.

Challenges and Criticisms of Harris’s Capital Gains Tax Proposal

Some critics argue that higher capital gains and corporate tax rates could reduce the U.S.’s global economic competitiveness. Increased taxes on corporations could lead some companies to relocate or adjust their structures to mitigate tax impacts. This potential decrease in competitiveness is a concern for both policymakers and high-income earners who rely on corporate investment returns.

The introduction of new taxes, including those on unrealized gains, make an already intricate tax code even more of a headache. High-income individuals may face increased compliance costs and administrative burdens. 

Those in high-income brackets will need to work closely with tax professionals to ensure compliance and optimize tax strategies.

Harris’s plan aims to reduce the federal deficit, but the projected economic slowdown and potential job losses could undermine these goals. Balancing revenue generation with economic stability remains a challenge, and it is uncertain how these policies will affect the deficit long-term.

Capital Gains Tax Strategies for High-Income Earners

Offsetting Gains with Losses

One of the most effective strategies for managing capital gains tax is to offset gains with losses. High-income earners can strategically sell underperforming assets to offset gains, reducing their tax liability. This approach is known as tax-loss harvesting and can be especially beneficial under higher capital gains rates.

Leveraging Tax-Advantaged Accounts

Using tax-advantaged retirement accounts like IRAs and 401(k)s can defer or minimize capital gains tax. By holding investments within these accounts, you can avoid immediate capital gains taxes, allowing your investments to grow tax-free or tax-deferred until retirement.

Working with Financial Professionals

Navigating these new tax policies will require careful planning. High-income earners should consult with tax professionals to identify the best strategies for minimizing capital gains taxes and maximizing after-tax returns. 

Proper planning can help you align your investment strategy with your financial goals while staying compliant with evolving tax laws.

Conclusion: Harris’s Balance Between Revenue and Economic Growth

Kamala Harris’s capital gains tax proposal represents a significant shift in how investment income could be taxed in the future. By targeting ultra-high earners and large estates, her plan seeks to balance revenue generation with social equity. However, these changes introduce new complexities and challenges for high-income earners.

As the 2024 election approaches, understanding these potential tax changes is crucial for those seeking financial freedom and long-term wealth. With careful planning and a proactive approach, high-income earners can adjust their strategies to adapt to the new tax landscape.

How To Leverage Private Foundation/501(c)3 Non-Profits To Grow Your Passive Investment Income

Despite strong career performance and disciplined financial habits, many high-income earners struggle to break free from the "rat race." 

For those earning $150k or more, traditional investment strategies and savings plans usually won’t get them the financial freedom they need. This can be attributed to a few critical factors:

We help our clients break free from their financial constraints by exploring alternative investments and advanced tax strategies to significantly improve net worth and cash flow.

One notable strategy is the use of a Private Foundation. This is a self-funded nonprofit organization accomplishes a few things for you:

Will Establishing a 501(c)3 Attract Suspicion From the IRS?

Is this legal? 

Many skeptics, including accountants or attorneys, might claim that using a Private Foundation will lead to legal trouble. However, this concern is largely unfounded. 

First, you should understand that there are two types of 501(c)(3) organizations: Public Charities and Private Foundations. 

Private Foundations are well-recognized and legally established entities often used by high-net-worth individuals. You’ve heard of a few of them:

The confusion and doubt usually arises because:

Don’t worry,  the Private Foundation is a “white hat” strategy and is a completely legitimate and tax-compliant vehicle for financial freedom, used by the ultra rich as well as savvy investors to accelerate their wealth-building process.

You Can Draw A Salary From Your Private Foundation

A director of a Private Foundation can receive a salary. Director compensation is based on asset performance, and their wage should be “reasonable,” usually determined by standard HR practices for compensation analysis.

The salary must be covered by the Foundation's passive income, along with the mandatory 5% annual donation of its total value. 

Here’s the trick: A founder of a nonprofit can be its director. That’s you.

The goal is to build capital quickly to eventually replace your current income. Unlike typical directors, Royal Legal clients also manage investments, handle legal, tax, and bookkeeping tasks, and support the Foundation’s operations—all with our support.

Real-Life Application: Tax Saving and Wealth Accumulation

Consider this typical scenario: Our client earns $250k per year and pays 20% in taxes. Under our guidance, she uses a Private Foundation to shelter $75k annually. 

This reduces her taxable income, saving her around $15k in taxes every year. 

After accounting for mandatory donations to charity, she is left with a true tax savings of over $11k annually, which she can reinvest.

By creating the Private Foundation, our client not only saves on taxes but also can invest those savings in high-yield opportunities, allowing her money to grow more quickly and efficiently than it would have with traditional investing methods.

By investing through a Private Foundation, she gets more of her returns by avoiding high capital gains taxes, allowing the wealth to compound much faster.

Comparison of Financial Growth Over Time

When using the Private Foundation for both income sheltering and high-performance investments, the difference in growth is substantial. Over a 5-year period, the compounding effect can lead to a considerable gap between traditional investing and tax-optimized, high-yield strategies.

This happens because instead of paying capital gains tax, which can easily be 20-30%, you are paying a tiny excise tax which makes those investments grow nearly tax free.

When you invest in high performing alternative assets, you can achieve annual returns between 20-30%. Then instead of paying your regular income tax and capital gains, you are paying the 5% donation and a small excise tax. This allows you to save tax on the front end and as you grow, which allows you to turn the Foundation into a passive income machine which you can use to achieve financial freedom faster than you thought possible.

How Much Can You Save?

The following table outlines tax savings based on different income levels and tax brackets.

These numbers are based on a 30% donation of annual income to the Foundation, which is the maximum amount that qualifies for tax savings.

IncomeTax Savings Using The Foundation
20% Tax Bracket25% Tax Bracket30% Tax Bracket
$150,000$6,750$9,000$11,250
$250,000$11,250$15,000$18,750
$350,000$15,750$21,000$28,250
$500,000$22,500$30,000$37,500
$750,000$33,750$45,000$56,250
$1,000,000$45,000$60,000$75,000

Building the Right Investment Portfolio

The tax savings that come from directing your own nonprofit can be invested in assets like real estate, small business investments, energy & machinery funds, and market-based investments. These alternative asset classes offer 20% or higher returns, but it’s essential to always vet each opportunity thoroughly as there are many scams with high return claims and you need to make sure you are only investing in legitimate deals.

While high-return investments can propel you to financial freedom quickly, it's essential to de-risk your portfolio by:

By adopting a conservative approach to risk while targeting high yields, investors can safely build wealth without jeopardizing their financial future.

The Private Foundation strategy is one of the best tools we know for rapidly achieving financial freedom by replacing your W2 (or active 1099) income with a passive director’s salary for managing the Foundation.

Ready to learn more? Reach out to our team today and get started … You’ll soon be the CEO of your own wealth-building company and the founder of your own charitable foundation!

Advanced Tax Savings Strategies for W2 Earners: Cash Flow & Depreciation Deals

For high-income W2 earners, Cash Flow Deals and Depreciation Deals are powerful tools to maximize tax savings, supplement income, and build wealth.

You need to make an informed decision about your path to financial freedom. So let’s get things going ….

Cash Flow Deals: Steady Income and Tax Benefits

“Cash flow deals” are investments that provide regular income. 

“Duh,” right?

But here’s the thing to know: They don’t inherently provide tax benefits. 

That said, when they are used in conjunction with a Private Foundation, they can become highly effective. This strategy is ideal for those looking to replace active income with passive streams, leveraging the Private Foundation to shelter earnings and grow wealth

Royal Legal Solutions helps you navigate these strategies to decrease your tax burden. We’ll show you how to use them in tandem. Once we set everything up, the foundation gives you initial tax savings, while cash flow deals give you high-yield returns (and no capital gains tax).

Cash flow investments are awesome for W2 earners looking to ditch their full-time jobs or generate passive income. These deals include heavy machinery, forex trading, and algorithmic trading. 

A $100k investment in a cash flow deal could potentially return $30k annually, paid out in installments..

Depreciation Deals: Reducing Taxes and Building Wealth Efficiently

Depreciation deals leverage investments that allow accelerated bonus depreciation, reducing taxable income immediately. These deals come in different types:

Depreciation deals offer substantial tax savings and help build net worth, making them a strategic option for those needing to offset high W2 income. Typically, these investments are held in your personal name to take full advantage of the depreciation benefits.

Balancing Cash Flow and Depreciation for Optimal Tax Savings

The best approach often depends on your financial goals:

To maximize savings, it is often recommended to max-fund a Private Foundation first and then explore additional investments in cash flow and depreciation deals for layered benefits.

Finding the Right Mix For You

The right blend of cash flow and depreciation deals depends on your financial goals and tax situation. By leveraging these strategies, W2 earners can significantly reduce taxes, build wealth efficiently, and create a pathway to financial freedom. 

Consulting with a financial advisor or tax professional can help tailor the right mix of investments to meet your specific needs and objectives. Royal Legal Solutions will help maximize your tax savings and investment ROI. We do that by modeling scenarios, forecasting how different types of investments can impact your bottom line. 

Royal Legal does not offer, underwrite, or recommend deals, operators, or deal clubs. We do not take a cut or get a kickback from any third-party deals.

Our clients are responsible for underwriting their own deals and investing their own money. YOU are responsible for deciding which strategies to implement. We provide access to a curated list of deal clubs and investment opportunities, but you are still responsible for your own due diligence.

Have questions? We’ve got answers. But first we’ll need to learn about  your situation and goals. We will help you model how different types of tax shelters and investment options impact your bottom line, and from there you can decide what best fits into your lifestyle.

Comparing Section 179 and Bonus Depreciation for Asset Deductions

The IRS provides tax incentives for business investments in fixed assets through Section 179 and Bonus Depreciation deductions. 

These two deductions are often applied for manufacturing and real estate companies, but they can be creatively applied to many other businesses as well.  

Understanding the differences between these deductions helps optimize tax benefits. Let’s take a look.

Eligible Assets

Bonus depreciation requires applying the deduction across all assets within a particular asset class, whereas Section 179 allows for more selective application on an asset-by-asset basis.

Annual Deduction Limits

Deduction Timeline

Both deductions must be taken in the tax year when the asset is placed into service. However, Section 179 allows flexibility to defer part of the expense, while bonus depreciation requires a set percentage to be applied.

Special Considerations for Listed Property

Listed property (used over 50% for business purposes) has specific deduction limits. For vehicles under 6,000 pounds, the maximum Section 179 deduction is $12,200, and bonus depreciation adds up to $8,000, totaling $20,200.

Deciding Between Section 179 and Bonus Depreciation

Combining Both Deductions

You can use both Section 179 and bonus depreciation, especially when near the Section 179 deduction limits. However, state regulations may differ from federal rules, so be mindful of potential complications when filing state tax returns.

By strategically using Section 179 and bonus depreciation, business owners can effectively manage their tax liabilities while maximizing deductions on qualifying assets.

Case Study: Section 179 Vs. Bonus Depreciation

2023 ExampleSection 179Bonus Depreciation
Net Business Income$1,000,000$1,000,000
Fixed Asset Investments$400,000$400,000
Deduction($400,000)($320,000)**80% of $400K
Taxable Income$600,000$680,000

Your State Matters

Every state is different in how they treat bonus depreciation and Section 179 deductions.With the 2023 example (above), if the investor used the bonus depreciation in Kansas (for example), they would be able to utilize the $320,000 deduction. However, if his equipment was located in California, would only be able to apply a $80,000 deduction ($400,000 spread out over five years). This is because California does not conform with the federal treatment of bonus depreciation and does not allow accelerated bonus depreciation.

How Investors Use Tax-Loss Harvesting to Reduce Their Tax Bills

Tax-loss harvesting (TLH) is a strategy that involves selling investments at a loss to offset capital gains and reduce taxable income. 

We can incorporate the strategy into your personalized plan for financial freedom.  1099 or W2 workers who make more than $150,000 per year and who pay over $20,000 in tax annually can lower their tax bills and optimize portfolio returns. 

By strategically realizing losses, they can improve their overall financial situation and potentially reinvest in assets that align better with their long-term goals.

The Mechanics of Tax-Loss Harvesting

To execute TLH effectively, investors need to understand the basics.

Identifying Losses and Gains: Begin by reviewing your portfolio to identify any investments with losses. The aim is to offset these losses against gains from profitable investments to minimize your tax liability.

Capital Loss Offsets: Losses are used to offset gains on a dollar-for-dollar basis. If capital losses exceed gains, up to $3,000 can be deducted from your ordinary income each year, and any excess can be carried forward to future years.

Short-Term vs. Long-Term Gains/Losses: Gains and losses are categorized as either short-term (held for less than a year) or long-term (held for over a year). Understanding the tax implications of each is crucial, as short-term gains are taxed at a higher rate, similar to ordinary income.

Strategies for Executing Tax-Loss Harvesting

Timing the Sale of Investments: Year-end is a strategic time for tax-loss harvesting, as it allows you to assess your total gains and losses. However, market volatility throughout the year can also provide opportunities to harvest losses.

Tax Implications on Reinvestment: After selling an asset at a loss, reinvest in a similar, but not identical, asset to maintain the desired portfolio balance while still taking advantage of the tax benefit.

Avoiding the Wash-Sale Rule: To prevent abuse, the IRS enforces the wash-sale rule, which disallows repurchasing the same or substantially identical security within 30 days of the sale. To avoid this, investors should carefully plan their sales and subsequent purchases.

Optimizing Tax Benefits with TLH

Balancing Short-Term and Long-Term Investments: Since short-term capital gains are taxed at higher rates, prioritizing losses to offset these gains can significantly reduce your tax burden. Long-term gains are taxed at a lower rate, so they should be managed differently.

Maximizing Capital Loss Carryovers: If your capital losses exceed your gains and the $3,000 deduction limit, the excess can be carried over to future tax years. This means TLH can continue to benefit your tax situation long-term.

Using TLH for High-Income Earners: For those earning $150k or more and paying over $20k in taxes, TLH can be a powerful strategy. By offsetting gains with losses, high earners can significantly reduce their overall tax bills.

Tax-Loss Harvesting Tools and Services

Robo-Advisors and Automated TLH: Many financial services, particularly robo-advisors, offer automated tax-loss harvesting as part of their offerings. These platforms can help identify opportunities for TLH without the need for constant monitoring.

Working with a Financial Advisor: A professional can offer personalized guidance on when and how to harvest losses effectively. They can also provide insights into how TLH fits within the broader context of your financial plan.

Considerations and Risks in Tax-Loss Harvesting

Market Risks and Timing: Selling an investment at a loss may mean missing out on a market rebound. Before harvesting losses, consider the potential for asset recovery and the impact on your overall strategy.

Cost Considerations and Fees: Transaction fees and other costs can eat into the benefits of TLH. Evaluate the cost of selling and repurchasing investments to ensure the net tax benefit is worthwhile.

Portfolio Drift and Long-Term Strategy: Frequent buying and selling of assets to harvest losses can lead to portfolio drift, where your asset allocation no longer aligns with your long-term goals. It’s important to balance tax savings with maintaining a well-diversified and stable portfolio.

Conclusion: Leveraging Tax-Loss Harvesting for Optimal Financial Health

Tax-loss harvesting is a valuable strategy for reducing tax liability, improving investment returns, and maintaining a healthy financial portfolio. For W2 employees and 1099 earners looking to maximize their income, tax planning is crucial, and TLH can be an integral part of that plan. 

Continuous portfolio monitoring throughout the year is key to finding the best opportunities for harvesting losses, as is consulting a financial advisor to tailor strategies to your specific financial situation. 

By leveraging TLH effectively, investors can take proactive steps toward financial freedom and early retirement.

The Short-Term Rental Tax Loophole: What Investors & High W2 Income Earners Need to Know About a Popular Tax Reduction Strategy

The Short-Term Rental tax loophole is a powerful tool for high-income earners looking to reduce their tax burden. 

This loophole specifically applies to properties rented out for short periods. Unlike long-term rentals, which are usually classified as passive income, STRs are often treated as active businesses. 

Platforms like Airbnb and VRBO have popularized this strategy, making it accessible for more people to leverage it for tax savings. As a specialized deduction our clients can leverage on top of standard deductions, it’s one of the ways Royal Legal solutions helps people achieve financial freedom.

Let’s take a closer look.

How the STR Tax Loophole Works

The STR tax loophole allows property owners to classify their rentals as active businesses if they have rental periods averaging less than seven days. By doing so, owners can use the losses from these rentals to offset their earned income. This can be particularly beneficial for high W-2 and 1099 earners, who are subject to higher tax rates. 

This loophole essentially allows you to treat the income differently than passive rental income, giving you an opportunity to reduce your tax burden.

Comparing STR Tax Loophole and Real Estate Professional Status

While both the STR tax loophole and Real Estate Professional Status (REPS) offer ways to use rental losses to offset earned income, there are key differences. 

REPS requires that you spend more than 750 hours and over half your working time on real estate activities. 

For those who earn high W-2 income but can't qualify as real estate professionals, the STR loophole is a great alternative. The STR loophole offers a simpler route to offset income through shorter participation requirements.

If you actively manage your properties and meet certain participation thresholds, we can show you how to leverage this loophole to significantly reduce your tax liability by offsetting a portion of your taxable income through material participation. 

What is the Material Participation Test for the STR Tax Loophole?

To take advantage of the STR tax loophole, investors need to pass the material participation test. This involves meeting one of seven criteria designed to show active involvement in the rental business. 

Key benchmarks include spending 500+ hours on rental activities, being solely responsible for business activities, or dedicating more hours than anyone else involved in the business. Each criterion offers a unique pathway to proving material participation.

Qualifying for the STR loophole requires more than simply owning a rental property. You need to actively participate in managing the property, keep thorough records, and meet one of the material participation requirements. 

To qualify under the material participation rules, activities that count toward your hours include property maintenance, marketing, communication with guests, and general property management. 

The required criteria for material participation include:

  1. Spending 500+ hours on your STR business.
  2. Being the sole participant responsible for STR activities.
  3. Spending at least 100 hours more than anyone else on the business.
  4. Combining significant participation activities to reach 500+ hours.
  5. Involvement in the activity for 5 out of the last 10 years.
  6. Participating in the activity for 3+ years if it is a personal service.
  7. Continuous, regular engagement in the business.

Meeting any one of these criteria can enable you to use the STR loophole to offset your active income with rental losses. Note: Hours spent on investor activities like arranging financing do not count.

Depreciation for Your Short-Term Rental Tax Strategy

Bonus Depreciation allows property owners to immediately deduct a large percentage of the cost of certain assets. Bonus depreciation is an IRS tax code that lets you “depreciate” the value of certain assets that make up a rental property more quickly than normal.

Instead of getting a tax write off over the useful life of a property, you’ll be able to get a larger deduction in the first year the asset was placed in service. By depreciating the cost of eligible assets up front, you can free up cash flow, reduce the tax liability for your business, and possibly even qualify for a lower tax bracket.

For the STR it allows the taxpayer to take a large depreciation in year one, which lowers their taxable income.

Rental Property Depreciation, on the other hand, enables you to deduct the cost of the property itself over time. This becomes a key strategy for reducing taxes, especially for STRs.

A cost segregation study helps to reclassify parts of your property from a standard 39-year life to shorter lifespans like 5 or 15 years. This allows for accelerated depreciation and can result in significant tax savings. Even as bonus depreciation phases out to 0% by 2027, conducting a cost segregation study can still maximize your property’s depreciation benefits.

Additional Strategies to Reduce Taxes on Short-Term Rental Properties

To further reduce taxes on your STR properties, you should maximize all property-related deductions. You can leverage depreciation not only for the property but also for furnishings and equipment. 

Self-managing your short-term rentals not only helps you qualify for the loophole but also maximizes the time you spend on active participation. By handling the day-to-day operations yourself, you ensure that your hours count toward the material participation requirements.

Meticulous tracking of all STR expenses, such as repairs, utilities, and home office costs, can ensure you take advantage of every deduction. Royal Legal will provide you with a financial team, including a real estate CPA and tax advisor, to optimize your tax strategy.

Properties with Multiple Units

If you own properties with multiple units, qualifying for the STR loophole can be even more beneficial. Managing multiple units means additional opportunities to accumulate hours that count towards the material participation test. 

The rules remain the same, requiring careful management and documentation of each unit.

When to Avoid Qualifying for the STR Loophole

The STR loophole is not always the right fit for every investor. If you have low or moderate income, or if you do not have the time to meet the material participation requirements, it might be best to explore other strategies. 

Overcommitting to the loophole without the ability to follow through could lead to noncompliance issues with the IRS.

Challenges & Considerations: What's Changing About Depreciation for STRs?

The depreciation rules for STRs are changing, particularly the phasing out of bonus depreciation. By 2027, bonus depreciation will be reduced to 0%, limiting the immediate tax advantages previously available. 

This change requires careful planning to ensure compliance and to maximize benefits before the phase-out. Staying up to date on tax laws and consulting with a CPA are crucial for navigating these challenges effectively. Royal Legal will guide you through the process.

Final Thoughts: Tax Strategies for Short-Term Rentals

Short-term rentals offer substantial tax advantages if approached strategically. The loophole provides opportunities for high-income earners to offset their active income, but it requires careful planning and adherence to IRS guidelines. Engaging with knowledgeable financial professionals and using property management tools can help you stay compliant and capitalize on the available benefits. As the landscape of STR tax strategies continues to evolve, staying informed and adaptable is key to long-term success.

How a Land Trust With LLC As Beneficiary Benefits Property Owners and Investors

Having a land trust is a good idea for property owners and real estate investors. Land trusts are especially a good idea in case you own more than one property and don't want everyone to know you own so many properties.

You can choose whoever you want for your land trust.  However, it should be someone you know and trust since your property title will be going to them to keep it safe and private for you. While your property is in a land trust's name, no one can see that you own it. For example, the title company cannot announce in the local newspaper that you own property (like they do with everyone else).

How to Start a Land Trust For Privacy and Asset Protection

First, you have to choose someone or a certain business to be your land trust. You don't have to choose an individual if you can't find one to do it for you. You also have the option to choose a business if the business owner agrees to do it.

Whichever one you choose, you need two legal documents for the land trust. The first legal document is a trust agreement between the owner of the property and the person or business who will be the land trust. The second legal document is the deed of the property from the owner to the trust.

Although the land trust will be holding on to the deed of the property, they will not be the owner of the property and will not receive any benefits from holding the deed and having their name on it. The owner still has all rights. The land trust is just for privacy. The trust agreement is also private and only you and the land trust know about the agreement.

Land Trust With LLC As Beneficiary for Privacy and Asset Protection

Although a land trust is for privacy and asset protection, a land trust does not receive the benefits that an LLC or a business does. However, if someone falls on your property and gets hurt, the beneficiary will be held responsible. This is the main reason to use an LLC or a regular business to stand in as the beneficiary of the property. The reason for this is that LLCs and other businesses are protected from something like this happening.

That was just the first reason for obtaining an LLC or other businesses as a land trust. The second reason to do so is because they receive tax benefits. This means that the transfer of the property can be done tax-free.

A third reason to use an LLC is that many attorneys and accountants don't even know what a land trust is in many states. Because of this, you won't have to worry about litigators looking at your property and thinking you have deep pockets. This way, they won't be trying to file a lawsuit against you.

How To Hide Ownership Of A Company: 3 Simple Steps

The main reason you might want to know how to hide ownership of a company is to prevent lawsuits.

I'm going to talk about the concept of anonymity, and one of the most effective tools for maintaining your anonymity is the Anonymous Trust. When set up correctly, the anonymous trust can be extremely effective at hiding ownership of your company—which in turn prevents you from being sued.

Here are three simple steps you can follow to hide company ownership and prevent lawsuits.

Step #1: Form an Anonymous Trust For Your Business

The Series LLC reduces your liability exposure, which effectively limits the potential damage a lawsuit can do to you. What it doesn't do is stop the lawsuit from happening in the first place. On the other hand, an anonymous trust can. If you truly want to make your company litigation proof and protect your assets, you need an anonymous land trust.

The probability of a lawsuit happening is based on three separate components: legal, factual, and financial.  An anonymous trust will attack each of those motivating factors. What this does is reduce the chance of a lawsuit happening in the first place.

Step #2: List Your Anonymous Trust as a Member of Your LLC

Yes, believe it or not, you can do that, at least in America. (You have several options when it comes to structuring your business assets.) Anyway, this tactic targets the financial component of a lawsuit.

Why? 

Because lawsuits only happen when a plaintiff believes they have a reasonable case for seizing assets to cover damages. If there's nothing they think they can seize from you, they won't sue you. 

The anonymous trust structure enables you to hide company ownership by listing your company as a member in your LLC’s Articles of Incorporation. Another advantage of an anonymous trust is that you don't have to file it with the state. This means the people who want to sue you won’t be able to access your ownership information in the public records.

There will be nothing to associate the assets with your name, shielding you from potential legal action.

Note that you can use this strategy with any type of LLC, including the Series LLC.

Step #3: Allow Uncertainty to Work Its Magic

People sue you because they want your money. Most of the time the people suing you have little to no money in the first place. And if they don't have enough money they can't pay a lawyer to sue you.

People usually get around this obstacle by offering their lawyers part of the settlement. This means it's up to the lawyer whether or not you get sued.

If a lawyer is uncertain about whether you own assets worth anything, they won't waste their time trying to sue you. After your anonymous trust is in place it will be next to impossible for someone to determine what you own. 

No lawyer is going to spend months or years trying to figure out what you own, period. I would know, I'm an attorney myself.

I hope you enjoyed this article. If you want to hide company ownership, make sure you do it right. To learn more about setting up an anonymous trust, visit our Land Trust hub or take our investor's quiz and find out if engaging with us is a good option for you.

Introducing The Anonymous Trust LLC

One day you're living life, enjoying the profits from your real estate investments. The next day you're trying to figure out how you got sued. That's life.

And that's why creating an anonymous LLC for your business is so important.

One in Four Americans Will Be Sued

According to a Clements Worldwide study, Americans face the greatest risk for being sued. The risk is even higher if you own real estate. Are you willing to roll the dice on your future? Investing in real estate without asset protection is like betting against the house. You might come out on top, but you're more likely to lose everything.

Asset protection was a tool of the rich for generations. Regular folk usually weren't aware of strategies to protect wealth (such as the anonymous trust LLC), or they were unable to afford it. Today these techniques are accessible to everyone, thanks in large part to the introduction of two new legal structures.

The Series LLC Structure

In the past, investors held companies under their name or a single entity. This created a jackpot scenario, where successful litigators could access the person's entire wealth. Savvy investors would spread assets between multiple entities, but creating and maintaining a host of businesses proved too expensive for most.

The series LLC changed the way assets are held. It makes it possible to spread assets across multiple holding companies, but reduces the filing and management expense to that comparable with a single LLC. For more information, learn the basics of the LLC structure.

The Anonymous Trust LLC Structure

The problem with a series LLC is that you can still be sued one property at a time. It doesn’t make you invisible. This is where an Anonymous Trust LLC comes into play.

Using a trust in this manner allows you to hide the ownership information of your company, including its assets. As a result, plaintiffs are unable to identify you or target you based on whatever juicy assets may be ripe for the picking. That information is invisible.

A Lawsuit Can Affect More Than One Property

Just because your assets are wrapped up in a traditional LLC doesn’t mean you’re protected. Unlike the series LLC, where your assets are spread out individually, a traditional LLC groups assets into one basket. While there are some legal benefits to a traditional LLC, it still leaves you vulnerable to attack.
In any case, here's a short list of what you should and shouldn't do.

Asset Protection "Do"s and "Don't"s

1. Don't Hold Property Under Your Name

Individuals have the least protection of any entity. Maintaining ownership status as yourself is the worst possible scenario and leaves you open to the maximum level of risk. A simple mishap, such as someone slipping while on your property and being denied insurance coverage, could result in a devastating legal battle and even wipe out your life savings.

It’s essential to create a company structure to hold your assets separate. This will make your legal person litigation bullet proof.

2. Don't Hold All Property in a Traditional LLC

While this is a much better scenario than personal ownership, it still leaves you exposed to losing everything under the LLC’s ownership. Which means you could lose all your assets, not just one.

A series LLC, on the other hand will offer twice as much protection.

3. Don't Leave Yourself Exposed Because You’re A “Good Person”

Lawsuits have nothing to do with whether you mean well. Instead, most lawsuits are based on accidents and misunderstandings, not fraud or malicious intent. The purpose of asset protection is to provide coverage when things don’t go as planned. Ask yourself: “Would I be comfortable giving them access to my bank account or credit card?”

4. Do Get Professional Legal Advice

It's hard to tell if your LLC was filed correctly, but there are some common areas that account for the majority of mistakes:

  1. Was the LLC properly formed and maintained (requires an operating agreement and yearly state filings)?
  2. Did you properly sign for all the contracts and business dealings?
  3. Have you filed the appropriate franchise taxes to maintain good standing?
  4. Are all records, including accounting and banking information, current and accurate?

A single technicality can invalidate your protection, which is why we always recommend consulting a specialist in the field.

Insurance Won’t Protect Your Investments

Insurance companies are in the business of collecting premiums, not protecting their clients. They routinely look for ways to deny coverage as a way of lowering their costs.

It’s always a good idea to have an insurance plan, but you shouldn't assume they will pay by default. There are a variety of ways your coverage can be reduced or denied. These range from state and local policies to your payment status or specific instances surrounding your claim.

Are You Sure You Can Count On Your Insurance Company?

Successful investors are experts and managing risk. Purchasing insurance is a good example of this, but having a Plan B takes things to the next level.

Let’s go through a fictional scenario. Imagine one of your newly acquired properties has a rotting staircase and someone accidentally trips and breaks their toe.

Most people would expect the insurance company to cover this unfortunate incident, but this time the insurance company fights back. They claim you exhibited gross negligence and are individually responsible for your guest’s injury.

This lands you in a tricky situation. The best case scenario is to endure a series of stressful negotiations and come out on top. Unfortunately, this doesn't always occur and you could be left holding the bag, exposing your life savings and assets in the process.

Smart risk management requires good up front decision making, such as purchasing a solid insurance plan. But it also includes having a plan for when tragedy and the unexpected strikes. In this case, it means not only carrying insurance, but protecting yourself from potential failure of your insurance.

You Can Be Fully Protected Within A Week

Did you know it's possible to create a scalable company plan in as little as a week? This plan includes both the company setup and the transfer of properties to the new legal structure, and the benefits are legion.

Compared to traditional structures, our asset protection plan provides a layered defense against lawsuits. Not only do we split your assets across various holding companies, but we veil your wealth in anonymity. This strategy makes you unappealing to most would-be plaintiffs and makes your assets inaccessible to the rest.

Most people struggle to pay the upfront costs of a lawsuit and agree to split the winnings with their attorneys. An asset protection plan for Royal Legal Solutions costs less than the typical attorney fees for a single lawsuit and lasts for a lifetime.

Lawsuit prevention is important, but cobbling together a complex network of business entities can be difficult and expensive. Each LLC requires its own filing expenses and management. It adds up fast and the maintenance doesn't scale. Compare that to our custom solution, which provides no hidden costs and comprehensive service. If you want to learn more, contact us today.

How To Take Money Out Of Your S Corp

If you’ve formed an S Corp to manage your real estate investments, you probably already know about the benefits that come with S Corp taxes. In fact, the primary difference between S and C corporations is the way the businesses are taxed:

That’s the beauty of an S Corp compared to a C Corp. C Corp income is taxed twice: once at the corporate level, and once at the individual level (as a dividend). S Corps avoid this double taxation by passing all of their income through to their owners. The business doesn’t pay taxes; only the owners do.

Whether you’ve started a corporation, an LLC, or a series LLC, you can elect to be taxed as an S Corp. If you’ve gone this route, congratulations! You’ve made a great economic decision that can save you some serious dough that would otherwise go to Uncle Sam. Now the question is: how do you take the money you earn out of your S Corp? 

 

Take Money Out Of Your S Corp: Cash Register

3 Methods: S Corp Distributions, Loans & Personal Salaries

In addition to tax benefits, a major advantage to forming a corporation is the protection it offers your personal assets in case the business gets sued. You should never use business money to pay for personal expenses; you could lose the protection of the corporation in the event of a lawsuit because you have commingled assets.

So how do you access the money that your S Corp makes? I’m assuming you didn’t start a business for your health: you’re doing it to make money to cover personal expenses.

If you want to take money out of your S Corp, you have three options:

Take S Corp Distributions

Distributions are the best way to get money from your S Corp. Because you’ll report it as “passive income” on your income tax return, it won’t be subject to employment taxes. This saves you money! 

Because S Corps are pass-through entities, you have to report your business’s income on your personal return whether you actually receive it as a distribution or not. The upside of this is that you won’t have to pay additional taxes on a distribution unless it constitutes a capital gain. A lawyer or tax accountant can help you determine the most advantageous way to take your distributions.

Transfer Money From the S Corp to Your Personal Account

Unfortunately, Uncle Sam won’t let you take all of the money out of your S Corp as distributions, because the government wants your tax money. For this reason, the IRS requires that you pay yourself a “reasonable” salary for your contributions to the company. You should try to minimize the amount of salary you take while still meeting the “reasonable” standard.

True to form, the IRS doesn’t give any specific guidance as to what “reasonable” means. Some factors that courts have considered when deciding whether a salary is reasonable include:

Another way to look at it is to pay yourself what you would pay somebody else to do your job.

Give Yourself A Loan From the S Corp

When you’re taking money out of an S Corp other than your salary, you can set up a line of credit between you and your business. Then, you’ll take cash out as a loan against that line of credit. At the end of the year, you and your accountant can decide if you should convert some of that loan to a distribution or leave it as a loan (you’ll need to pay interest on the loan). If you borrow money from the corporation (via a loan), you’re never going to have capital gains. 

However, even if you list your withdrawal of funds as a loan on your financial statements, the IRS can recharacterize it as a distribution. If Uncle Sam recharacterizes your loan, you’ll have to pay income taxes on it just as you would a distribution.

If you take out a loan from your S Corp, you need to dot your i’s and cross your t’s to make sure it stays characterized as a loan. For example, creating a legally enforceable promissory note helps prove that the transaction was actually meant to be a loan. Before you take a loan from your S Corp, you should seek advice from your lawyer and your accountant.

Can A Land Trust Borrow Money to Buy Property? Finance Your Next Investment

There are many advantages to setting up an anonymous Land Trust for your real estate investments. Did you know that you also can use these trusts to borrow money to buy additional property?

In this article, we will examine the advantages of a Land Trust mortgage and how to obtain one.

What is a Land Trust?

Over in our Tax, Legal, & Asset Protection Secrets For Real Estate Investors mastermind group, you'll hear me recommend this type of asset protection pretty often, but before we go much further, let’s make sure we are clear on some definitions.

A Land Trust is a legal entity that has control over a physical property and other real estate-related assets at the instruction of the property’s owner. As a living trust—one that is created during your lifetime—a Land Trust is typically revocable, meaning it can be amended or terminated at any time.

A Land Trust can protect both your assets and your privacy and prove to be a valuable part of your estate plan. Let’s say you own an investment property. If you deed the property to the trust, your name comes off the property deed as the owner, and the trust becomes the owner.

The terms of a Land Trust can be unique to the type of real estate it owns. You, as the grantor, then choose someone, called a trustee, to make sure your instructions in the trust agreement are carried out to benefit your heirs (beneficiaries). The trustee can be a friend or a relative, your attorney, or a professional appointed from a financial institution.

Unlike a will, which is a public document, a living trust is private. No one can know the details of your Land Trust other than the trustee.

REN 12 | Real Estate Investment And Tax

What Is A Land Trust Mortgage?

Now, let’s say you want to borrow money to make improvements or preserve assets that are held in a Land Trust. Or maybe you need to refinance a property held in the trust. As long as the trust is revocable, you can apply for a mortgage.

Not all lenders extend loans on trusts, so your first step is to notify the lender that the property is included in a trust and provide them with a copy of the trust agreement. If the lender is on board, you’ll next need to check the trust deed to determine if the trust allows the trustee to take out a mortgage on the property. (It is not always the case.) You’ll also need to confirm that the trust allows the property to be used as collateral or security for a loan.

How to Obtain Financing Through Your Land Trust

If the trust does allow the loan, the trustee will need to sign the mortgage or a promissory note. The note stipulates that the trust will be responsible for paying back the loan and that the refinanced property will be used as collateral for the loan. If the trustee won’t be signing personally, you will have to apply for the loan and sign the guarantee or the note.

If the trust doesn’t allow for the loan, the trustee cannot sign the mortgage. If the property can still be used as collateral, however, the lender may require you to re-title the property. This requirement means you will have to take the property out of the trust and return it to your personal ownership before you can take out a new loan.

This process requires the preparation and recording of two deeds with your county recorder or registrar. One deed takes your property out of the Land Trust, and the other one puts it back.

Some lenders will accomplish this deed paperwork for you, or you can ask your attorney to handle it. Your attorney should then draw up a document that states the property can be used as collateral on the new loan.

Suppose your property is already in a Land Trust and you want to borrow against the beneficial interest. In that case, the lender must serve a Notice of Collateral Assignment on the trustee. Then the trustee will write an acknowledgment of the assignment. When this situation occurs, the trustee cannot transfer the property’s title in the trust or encumber or mortgage it without the lender’s written consent.

Now, here are the five steps the lender will take before granting the loan.

  1. The lender will review the trust instrument, also called a deed of trust.
  2. The lender will confirm the identities of both the grantor and trustee.
  3. The lender will establish whether the trust grants the trustee power to borrow money and pledge or encumber trust assets.
  4. The lender will determine if the trustee needs to sign a trustee certificate to stipulate the trust’s terms and confirm the trustee’s authority to apply for a loan.
  5. The lender will require the deed on record as legal evidence that the trust actually owns the property. (You’ll need to provide the deed on record for this step.)

Advantages of Land Trust Mortgages

Borrowing money on property held in a Land Trust gives you more options than a conventional loan can provide. In addition, selling property held in a Land Trust to current tenants is often more secure and less risky than conventional sales.

In addition to maintaining your privacy as an investor, you also can avoid transfer taxes because the sale of a beneficial interest in a Land Trust does not involve the property itself. Another advantage is that tax assessments are lower because the sale price of the property is not publicly available for real estate assessors to view. You also can skip lengthy and costly probate procedures after the death of an owner.

What About The Due On Sale Clause?

Many investors worry that they will sacrifice their anonymity by triggering the due on sale clause if they finance a property purchase through a Land Trust. This clause in a loan or note states that the full balance of a loan may be called due upon sale or transfer of ownership of the property used to secure the note.

It's important to understand that banks rarely invoke the due on sale clause if mortgage payments are being made regularly on a property. After all, banks profit from your mortgage payments.

You are able to transfer your property or obtain better financing for an investment property without the worry of triggering this clause. Here are the basic—and perfectly legal—steps to take.

I like to encourage my clients with this advice–a Land Trust is simply a tool for an investor. You can use this tool to protect your anonymity, prevent frivolous lawsuits, or manage certain pieces of property. Yes, an unethical person can use a Land Trust in a dishonest way, but that reveals more about that individual’s integrity (or lack thereof) than it does about the Land Trust as an investment entity.

Finally, if you’re seeking to obtain a loan against your Land Trust assets, you’ll need the advice of an expert trust administration attorney. Our dedicated professional team at Royal Legal will prevent you from taking any action that might harm the assets of the trust.

Note: You also may be interested in our article about S Corp distributions here.

Land Trust Mortgages: How To Borrow Money Using a Land Trust

I’ve been harping on for years about the importance of setting up a land trust for your real estate investments. Today I want to touch on one of the issues many real estate investors struggle with – how to borrow money using a land trust.

There are times when you may want to borrow money to make improvements or preserve assets held in a land trust. There may also be a need to refinance the property at some point. You need to make sure that the trust has the power to borrow money. It may not always be the case and this is normally covered in the trust deed.

Let me get right into the mechanics of it all.

What Do I Need to Get a Mortgage Loan Using a Land Trust?

The first step you’ll need to take is to have the trustee sign the mortgage or note. However, you will need to apply for the loan and sign the guarantee or the note since the trustee won’t be signing personally.

Alternatively, if you have your property in a land trust already and want to borrow money against the beneficial interest, then the lender will need to serve a Notice of Collateral Assignment on the trustee. The trustee will then write an acknowledgment of the assignment.

When this happens, the trustee is no longer able to transfer title of any property held in the trust or encumber or mortgage the property without the lender’s written consent.

Here are the five things the lender will be looking for when granting the loan:

  1. The lender will need to review the trust instrument.
  2. The lender will need to confirm the grantor and trustee identities.
  3. The lender will need to establish whether the trust grants the trustees power to borrow money and pledge or encumber trust assets.
  4. The trustees may be required to sign a trustee certificate reciting some key terms of the trust and confirming the authority of the trustees to take out a loan.
  5. The bank will need evidence that the property is actually owned by the trust. For this, you will be required to provide the deed on record for review.

If you’re seeking to obtain a loan against trust assets, you need to consult with an expert trust administration attorney. You do not want to take any action that might potentially harm the assets of the trust. 

You may also be interested in our article that answers the question, "Can I take a loan from my S Corp?" 

How Do I Collect Rent From Renters That Have Moved Out?

You have to collect rent that is past due. That's not fun, but it's sometimes necessary. This whole process can be a sticky situation for any real estate investor. 

Maybe you disagreed with your tenant over their excessively late rent. Or maybe they broke the lease and added another pet without your knowledge. Maybe their kids dropped a firecracker in the toilet, and it exploded. 

For whatever reason, either you had to evict, or your tenant packed up and moved out, denying you the ability to collect back rent.  

That's not an ideal situation. It's an unpleasant annoyance that a real estate investor contends with as part of doing business. But it doesn't have to be. 

In this article, we'll cover three practical and actionable strategies that enable you to collect back rent for the services you rendered. 

Collect Back Rent From The Security Deposit

You can't control that your tenants violated the terms of their lease, broke it, and left. You can control how you respond to their actions.

Suppose your tenant left without paying rent. Their violation is a situation in which they surrender the security deposit to you. Being behind on rent or breaking the lease is probably enough for you to collect back rent. 

Check with your real estate attorney to be safe. You never know when your absent tenant might demand the security deposit back. 

Use The Courts To Collect Back Rent

Even if your tenant left, they still have the responsibility to fulfill the terms of the lease agreement. First, you should try communicating with the tenant to explain their financial obligations. That doesn't always work out.

A lease is a legally binding contract. In other words, your tenant signed a legally binding contract stipulating that they would pay rent to live on your property. Once they violate the terms of the agreement, you have legal recourse in the form of your state's small claims court system. 

How Does Small Claims Court Help Me Collect Back Rent?

Small claims court is a relatively cheap and time-efficient way to collect back rent. The process differs from state to state, but in general: 

You'll get an enforceable judgment if you win in small claims court. With that enforceable judgment, you can collect back rent from your tenant via:

Use Other Legal Remedies to Collect Back Rent

Another excellent, straightforward legal remedy to collect back rent is to sue in assumpsit. 

When you sue your former tenant in assumpsit, all you're doing is asking the court to get them to pay what they owe you. That's it. Some states don't believe you're entitled to just back rent but also interest on the unpaid rent. We're fans of such landlord-friendly statutes.

It's always a good idea to check local laws and retain counsel if you plan to go to court. The court may be a worthwhile endeavor for large enough sums that the tenant could plausibly pay. Others may prefer to negotiate directly, arbitrate the dispute, or seek small claims damages as alternatives.

When Is Suing Worth it?

Your mileage with success in court will vary. The most significant considerations are their likelihood of success and the value of their own time. State law largely determines the former, how much you can recover, and in what venue.

The second consideration--about the value of your time and how you wish to spend it--is far more personal. Lawsuits are lengthy, often painful affairs. Most people will go well out of their way to avoid one. The reward and chances of victory need to be sufficiently high for the stress to be worth the trouble for most of us.

That said, court remedies exist for a reason. They're there when all your other, more straightforward solutions to your problems fail. When diplomacy, asking nicely, raising your voice, lowering your voice, offering to solve it between yourselves, offering to "release" from or any won't do anything. 

If you've lost money from nonpayment, you can be made whole financially. Just understand that with anything court-related, there are never any guarantees.

Key Takeaways

It's never fun to have to collect back rent. It's time-consuming for you and takes you away from running your business. Unfortunately, collecting back rent is a necessity sometimes.

You have several options to collect back rent that we covered. You can use each or all of the following strategies to get your money:

Royal Legal Solutions helps real estate investors protect their assets. Secure your financial future, and register for your FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST!