WHICH IS BETTER? Tax Deduction or Tax Credit
Have you caught your breath yet since filing your taxes? Well, it’s now time to start planning your taxes for next year! As you create a tax “game plan,” having two ways to deduct your tax bill can be very confusing. Let’s walk through it. We promise it’s a lot simpler than it sounds. TAX DEDUCTION — GETTING A LOWER TAXABLE INCOME Let’s say you’re a small-business owner. Sometimes, you might accidentally or intentionally pay off business expenses on your own dime. Luckily, the IRS doesn’t want to punish small- business owners for this. They consider many business expenses as tax deductible. So, when you file a tax deduction, it lowers your taxable income, and thus reduces your tax liability. The lower your taxable income, the lower your tax bill. TAX CREDIT — GETTING A TAX BILL ‘GIFT CARD’ Your taxable income can go up or down throughout the year, depending on what you make and types of expenses. However, once calculated at the end of
the year, your tax bill is often a fixed number. That’s when tax credits come in handy.
A tax credit is a dollar-for-dollar reduction in your actual tax bill. In fact, a few credits are refundable: If you owe $300 in taxes, but qualify for a refundable $1,000 tax credit, you’d get a check for the difference of $700. Because this credit applies directly to your bill, it can often take a bigger bite out of your tax bill than a tax deduction. It’s worth mentioning that, in most cases, tax credits aren’t refundable. However, unlike gift cards, their value doesn’t last into the following year. If you owe $300 in taxes, and have a nonrefundable $1,000 tax credit, you’ll owe zero dollars without getting a check for the difference. In 2021, you may know the government provided pandemic-inspired tax credits for Americans with dependents. However, many credits exist, and some, like savers’ credits, might surprise you. If you’re married and filing jointly, and have
a combined income between $43,001–$66,000, you’ll receive a tax credit of 10% of your 401(k) or Roth IRA contributions. A single filer with a $19,750 income or less qualifies for a credit of 50% of retirement contributions. Check out lists online of available federal tax credits for 2022, and make sure to research carefully how they work. If you want a better tax strategy for your next tax bill, this is a great way to start.
AND HOW I FIX THEM Blood-Boiling Property Management Issues
A few Sundays ago, I inspected one of our 100-plus unit properties and found the common areas in subpar condition.
So, I went back to those managers and whipped them into shape. That’s why I do personal inspections, even though the majority of the time the management folks do a great job. My cash flow and net worth and my partners’ cash flow and net worth depend on it. One mistake I see a lot of investors make is failing to “inspect what they expect.” Think about it. What if an investor owned a 100-unit property and didn’t inspect it? It would still be in a good location but with low rents due to the condition and crappy tenants … which is exactly what we want to avoid as property owners. I work very hard to make sure my partners and I have first shot at great projects that have gone to seed and shrunk in value. And I work equally hard to make sure our properties don’t become “those” properties. My investment clients and partners love this because they know I’m doing the work while they deal with other things in their lives. In my opinion, that is how investing should be. No hassle, no worry, and low risk. When you have an investment that works overtime for you, you are bound to get good results. Email me at Darin.Garman@gmail.com or call 319-350-5378 when you’re ready to see them. –Darin
This was a huge problem: Great common areas are key to making a good first impression on potential tenants and keeping the current tenant mix in their apartments as long as possible. But this common area wasn’t where it needed to be. Not even close. So, the very next day I gave our management folks direction on what needed to be done. A week later, I went back to the property, and what did I find? The common areas were in worse shape than before! To say my blood was boiling would be a huge understatement. When my money and the money of my investment partners is on the line, I take it very seriously. This property was doing fine cash flow-wise, BUT it could do so much better.
2 DARINGARMAN.COM
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