Year-End Tax Preparation: What You Need to Know

Are you ready for year-end tax preparation?

It’s hard to believe that there are only a few days left between you and 2022. As 2021 ends and you forge your path forward into 2022, you must undertake some housekeeping to close out 2021 and start 2022 in the best position possible as a real estate investor.

As a real estate investor, it might not seem that there is much to do. However, each year, you need to assess your plans, goals, and the state of your investments. Before the year closes out, make sure to go over this essential end-of-year checklist.

To prepare for tax season, we strongly suggest you:

  • Organize your tax documents (this saves time and money)
  • Optimize your end of year deductions
  • Prepare your LLC for taxes

Read below to find out the best ways to accomplish the preceding tasks.

#1 Organize Your Tax Documents for Year-End Tax Preparation

You want to make sure you prepare everything for filing. Tax day seems far off in the distance, but April 15th comes fast in reality. As a result, it’s never too early to get your documents in order.

Right now is the optimal time for real estate investors to collect all documents related to filing taxes. Some things you can do to make this process easier includes:

  • Meet with your CPA
  • Ask questions and clarify misconceptions
  • Discuss tax breaks

Ensuring that you have all your taxes settled ahead of time reduces stress and allows you to move past the financial commitments of 2021 and focus on growing your business in 2022.

Paper receipts can be burdensome, so it might be easier to pull out your bank records and highlight all your expenses. Some apps make tracking expenses more manageable. We like Expensify.

#2 Optimize End of Year Deductions for Year-End Tax Preparation

You plan on growing your business in 2022. One way to maximize your deductions is to purchase business vehicles and additional assets. Then you can schedule business meetings. Then, claim them as expenses on 2021’s taxes.

As the year ends, you want to recheck your deductions to get your taxable income as close to zero as possible. One of the ways to lower your tax responsibility is to file deductions. You can file deductions on:

Being a real estate investor comes with plenty of tax deductions. The following list is not comprehensive but provides you with some ideas of what you can deduct in addition to the standard deduction:

  • Theft/Damage to real estate properties
  • Repairs and maintenance for your rental properties
  • Utilities (if you pay for them without reimbursement)
  • Property management fees
  • Real estate insurance
  • Tenant credit reports and background checks

It’s hard to maximize your profit if it’s getting eaten up by all the sales, properties, federal income, and state income taxes you must pay. As a savvy real estate investor, you need to finesse your documentation and deductions and realize the benefits of being a landlord.

An easy way to make sure that you are optimizing your end-of-year deduction is through Royal Legal Solutions’ Peace of Mind Program. We hold all your tax accountability through the program, work with your account executive and CPA to maximize deductions, and shelter your assets.

Contact [email protected] to learn more about how the Peace of Mind Program will protect you and your assets.

#3 Prepare Your LLC for Tax Season

As a real estate investor, you know the importance of having your assets protected by an LLC. Depending on where you do business, having an LLC means paying a yearly franchise tax.

The franchise tax is a required fee that your LLC pays for the right to do business in any given state. This tax is separate from other federal or state income taxes required by government entities.

Franchise taxes are required:

  • regardless of profit
  • based on the state in which you do business

In addition to franchise tax considerations, as an LLC owner, you will want to:

  • adjust your operating agreement if you changed business partners
  • collect LLC Minutes
  • prepare tax documents
  • protect newly acquired assets with current or new LLC

Key Takeaways

When you began your real estate investing journey, you had a set of goals in mind. Now is the time to revisit those goals, assess your performance, and make needed adjustments to accomplish your goals.

As you enter the new year, you should focus on growing your business. That means putting 2021 tax burdens behind you. Make sure you finish 2021 strong by having a clear and detailed plan where you:

  • Organize tax documents
  • Maximize deductions
  • Optimize your LLC

A solid plan in place will allow you to earn more and grow your real estate portfolio.

Do you need help with this year’s taxes? To help you navigate the maze of taxes and learn more, register for our FREE Royal Tax Group Mentoring, Tuesdays at 12:00 p.m. CST.