Category : Strategic Tax Mitigation

Save Taxes

Tax-mitigating Investment Strategies Require Structure

  • Robert L. Boggess
  • November 22, 2017

What if your financial advisor was always looking at your full financial picture and goals, then collaborating with your tax advisor to optimize tax savings? One of the biggest issues for high net worth individuals and small businesses is taxes.

I used to be an architect, for me it was a natural progression from that profession to commercial real estate and on to financial analysis and investment strategies to maximize tax savings. The common threads are structure and strategy. These two components are the key to how I build tax mitigation strategies at IREXA.

‘Structure’ is a complex system considered from the point of view of the whole rather than of any single part. This is how I think of investment strategies and why I work so diligently to build the most tax-efficient outcomes.

‘Strategy’ is a plan, method, or series of maneuvers for obtaining a specific goal or result. Together structure and strategy are my methods for building Strategic Tax Mitigation™ for accredited investors.[1]

In light of the financial whole, what series of maneuvers (strategic investments) will more probably obtain a specific goal. I always assume that one of the goals of high net worth individuals and small businesses is to reduce taxes and redeploy the savings to their own benefit.

No one investment sits alone. It creates the potential for income, loss, tax, expenses, deductions, etc.  Why choose one investment vehicle over the other? I look at all aspects and possible outcomes.  For example, if you buy stock, it produces a dividend and sells for more than you paid, maybe; but buy fractional ownership in real estate and potentially have income, equity, plus the tax deductions.

My clients are active participants in the process. I view my relationship with my clients as one of trust, common vision, good communication, and mutual respect. I plan and design a financial strategy in collaboration with their tax advisor and coordinate execution. The goal is to maximize the tax-saving impact by adding ideas, seeking clarity, finding what emerges as we work our way through the process.

I build tax-efficient wealth strategies that may reduce overall tax liability. There may be many opportunities to reduce one’s current tax burden, and they are legal, set up as policy to encourage investment.

Isn’t it worth a free consultation to make sure you are keeping as much of your money as possible?

 

[1] IREXA may have investment solutions to help you with your individual tax situations as determined with your CPA, tax advisor, or attorney. Neither IREXA nor SANDLAPPER Securities, LLC are tax advisors.

 

 

IREXA Financial Services / Wealth Strategies collaborates with CPAs, attorneys, and other tax planning professionals to assist clients with tax mitigation strategies.  IREXA, SANDLAPPER Securities, and Sandlapper Wealth Management are not tax professionals or attorneys. IREXA only provides client tax mitigation strategies through, and with the approval of our client’s professional counsel.

Securities are offered through SANDLAPPER Securities, LLC (SLS), member FINRA/SIPCAdvisory services offered through Sandlapper Wealth Management LLC (SLSWMan SEC registered investment advisor, 800 East North St, 2nd Floor, Greenville, SC 29601, 864.679.4701.  IREXA is unaffiliated with SANDLAPPER Securities, LLC and Sandlapper Wealth Management LLC

The 1031 Exchange & Diversification

DST Properties Create Options

If you own commercial real estate and are ready to sell, hopefully near the top of the market, a 1031 exchange for like kind property may defer taxes to a more opportune time. Deferring taxes allows you to redeploy your capital gains into more investments to potentially grow your wealth.

In this time of unknown economic factors, diversification may provide more stability.  And, “like kind” for a 1031 exchange has a broad interpretation that may allow you to exchange a warehouse for an interest in an office building, a shopping center, or an energy production property, as well as a different geographical zone than your current property.  Such diverse properties are available as Delaware Statutory Trusts “DST” in which you are a shareholder.

If you are ready to hang up your management duties, using a 1031 exchange allows you to move from hands-on ownership into a professionally managed, institutional quality property that provides passive income.

A 1031 exchange has deadline requirements that are easy to manage if you plan ahead. We have turnkey DST properties that are ready for purchase.  You can view our current DST properties and receive our continually updated property list.  Please call (866) 596-1031 with questions about your property, sale, and 1031 exchange options.  We work diligently to help you keep more of what you make.

1031 exchange     1031 Exchange

 

IREXA Financial Services / Wealth Strategies collaborates with CPAs, attorneys, and other tax planning professionals to assist clients with tax mitigation strategies.

Using Tax Mitigation Strategies to Grow Your Wealth

Why You Need a Tax Efficiency Analysis

At IREXA, we focus on tax mitigation strategies. We help clients mitigate taxes from:

  1. ordinary income, passive, and portfolio income;
  2. the purchase and sale of assets including real estate; and
  3. retirement and estate planning issues.1

First let’s talk about tax mitigation strategies. Tax mitigation is simply the idea of developing strategies that reduce your taxes. To better understand, let’s look at possible sources of income. There are four categories of income: earned income, investment income, which includes passive income, and portfolio income; tax-deferred income; and my favorite, tax-free income.

Earned income is compensation from employment or the actual involvement in a business. This is the most taxed form of income and is the most limited in terms of deductions. Portfolio Income is derived from investments, including: capital gains, interest, dividends, and royalties. Investments held longer than 12 months have preferred tax rates. Losses can offset gains. Passive Income is derived from activities in which you do not actively participate such as: real estate or limited partnerships. Losses have the ability to offset passive income.

Tax deferred income is derived from retirement accounts. Tax deferred income can be converted to tax-free income through the use of a ROTH account. Other strategies exist for adding to the tax-free income category including insurance. Achieving Tax-Free Income is the aspirational goal.

tax mitigation strategiesEach type of income can have tax impacts mitigated by using tax mitigation strategies that are available in the tax code and by using assets that achieve specific strategic goals.

With earned income, deductions are generally available after the income is received. For example, if you’re contributing to a pre-tax retirement account that is based on your income you won’t know how much you can contribute until you’ve received your income.

With portfolio and passive income, taxes are generally mitigated at the time of purchase or sale. For example: you might consider purchasing one of two investments. The investments are alike in all characteristics, purchase price and yield, except one of the investments has an additional offset to income, depreciation. The investment with depreciation is the more tax efficient choice, and it is a choice made at the time of purchase.

With tax-deferred income, the account grows tax-deferred. Since withdrawals are taxed at ordinary income rates, one should consider conversion to a ROTH as early as possible to limit taxation due to account growth. After all, where do you want to be taxed, on the seed, or on the crop?

Review our analysis of clients who have fully deployed their tax mitigation strategies because they have had savings upwards of six figures.  One of my core tax beliefs is: Focusing on tax efficiency may significantly enhance portfolio yield. Learn more about investment timing and tax mitigation.

 

1 IREXA may have investment solutions to help you with your individual tax situations as determined with your CPA or tax advisor.

1031 like-kind exchange, financial advisor, investing

How to Make the Most From Real Estate Investments With a 1031 Exchange

You’re a Real Estate Investor Considering a 1031 Exchange to Defer Tax on Gain

You own commercial real estate with all of its rights and responsibilities. Perhaps you want to cash in on the equity you have built up in the last decade or you are through dealing with tenants. You’re ready to create income without having to work; that’s retirement. Some tactics that may maximize your return are: get out of the market as close to the top of the cycle as you can, defer taxes on capital gains, redeploy gains through an IRC §1031 Like Kind exchange into property that provides passive income from a professionally managed property as well as diversification of your portfolio.

Market cycle

A real estate market cycle lasts about 10-12 years. As an example, in the greater Seattle area, we are at or near the top of the cycle. Consider the cycle characteristics: seller’s market, demand is high, inventory is low creating bidding wars and rising prices.  Your risk tolerance, time horizon, and opportunities factor into a decision to sell. As a commercial real estate professional in Seattle for over 30 years, I recognize that now is at or near the top of our cycle. If you are considering selling, it may be time.

Capital Gains Tax Deferral 1031 Like-Kind exchange

You are re-evaluating how real estate fits into your portfolio and you know if you don’t take advantage of the 1031 exchange, a big tax bill may be due. But how do you find the same kind of property with the same level of debt to equity? And, how do you diversify if you have to buy the same kind of property? The rules seem daunting.

A Viable Exchange Property

A Delaware Statutory Trust (DST) offers opportunities to convert the capital gains from your commercial property sale and diversify real estate holdings by purchasing an interest in one or more qualifying properties with similar equity and debt ratios. A DST is an alternative for replacement property for accredited investors seeking to defer capital gains taxes through the use of a section 1031 tax-deferred, like kind exchange.  Review our 1031 DST Properties here.

In a DST, investors own a fractional interest in one or many institution quality, professionally managed, commercial property such as retail malls, multi-family housing, and industrial properties in diverse geographical locations. The DST may provide cash flow income, tax benefits, appreciation, and reduced risk through diversification. A DST allows you to redeploy your money. You keep your hard-earned money working for you.

Complexity

Complexity is the enemy of execution: inertia, decision fatigue, and less complicated alternatives may impede long-term strategy. Investing can seem complicated and working through the intricacies of the Internal Revenue Code overwhelming. That is why building a relationship with a proven, trusted financial advisor who understands the tax-saving benefits of investing and can walk you through your investment options is so important. An experienced reliable professional will find the most tax-efficient strategies to help you keep more of what you make to reach your financial goals.

 

We Create a Tax Efficiency Team

Bring All of Your Tax Planners onto One Team

Tax efficiency is a simple concept. Given two investment scenarios the tax-efficient scenario is the one that generates the least amount of taxes.

By taking the time to set up a collaborative relationship with a financial advisor who works with tax mitigation strategies, Certified Public Accountants, Enrolled Agents, and other tax professionals can change their business model to a tax-planning focus, which may result in greater revenue generation and greater client satisfaction because of tax savings. Tax efficiency is better served by having all tax planners and tax advisors work together on your personal team.

 

When I started evaluating the investment solutions on our platform from the perspective of how they can mitigate taxes rather than just the returns they yield, I developed a replicable analysis and strategy for nearly any high net worth client.

 

It’s as simple as this:

Consider all the sources of income. Here is how you mitigate the taxes on those sources of income.

 

Collaborating with tax advisors serves our investor clients better. An insurance agent is trying to solve all problems with insurance, and a real estate agent perhaps solving all problems with real estate. From the client’s perspective, clients who are working with a number of different financial service providers, who may not share all of the information with those advisors, end up with products that may not be efficient for their needs and even work at odds against each other. This is not tax efficiency because the vision for growing your wealth is not unified.

 

When I see a client for the first time, I look at their entire financial picture. Usually action needs to be taken such as rearranging insurance policies, transferring insurance to a plan with more flexibility to create income. It’s because the client was not aware of the possibility of having this complete financial picture service.

 

The use of tax mitigation investment strategies can be beneficial to any person with investible assets. Aside from the tax savings, it is important to invest with a plan, understanding that how you invest will positively or negatively impact your bottom line.

Benefits from wealth management strategies increase as income and net worth increase.  An individual in the 39.6% tax bracket has the opportunity to benefit more than someone in the 25% tax bracket. If tax savvy strategies that have a positive effect of saving taxes are deployed, our clients may be able to keep and invest more of what you make.

 

Since it is every person’s responsibility to pay only the taxes they are obligated to pay, here are sections of the IRC that can be applied to reduce the taxpayer’s tax obligation and the amount of taxes that are required to be paid. It is from this perspective that I am creating Tax Mitigation Strategies.

 

  1. Ordinary Income: (This strategy may be able to be used in tax year 2016)

Our primary strategy involves an IRC § 170h Charitable Contribution. With approximately $75,000.00 in Federal tax liability, the Charitable Contribution should be able to reduce tax liability by approximately 15%. At higher income levels the Charitable Contribution tax liability reduction tops out at about 25%.  Learn more about Conservation Easements.

  1. Investment Income:
  2. Form 1040 Line 17 “Rents and Royalty Income” – Primary Strategy involves using investments that impact Form 1040, Line 17 “Rents and Royalty Income.” Income producing investments are available that can mitigate impacts to Line 17 by partially or fully sheltering income from those investments, or providing shelter that is sufficient to reduce Line 17 income below its original value prior to using the strategy.
  3. Purchase and sale of assets including real estate.

i.) Real Estate. Primary Strategy involves an IRC § 1031 Like Kind Exchange, which can defer the payment of taxable liability to a more opportune time.

ii.) Non-Real Estate (or Real Estate “boot”). Primary Strategy involves using investments that provide substantial first year write-offs.

  1. Net Operating Loss (NOL) Carry Forwards, IRS Form 8582 – As a result of the recent economic upheaval, some clients have excess NOL carry forwards. In some cases, the extent of the NOLs is such they cannot be extinguished within the 15-year carry forward period without external intervention. The Primary Strategy involves the use of investments that are Passive Income Generators (PIGs). To take advantage of this strategy the client must have additional investible assets, which are used to acquire the PIG. Assets are available with annual returns in the 8+% range that provide 85% to 100% passive income. Income generated through the use of this strategy is effectively tax-free until the NOLs are extinguished. Tax Deferred Income – Primary Strategy involves consulting regarding tax efficient retirement plan maximization. A Secondary Strategy occurs when clients have additional discretionary income that could be more tax efficiently deployed in a tax-free account.
  1. Retirement Income:

Insurance Solutions can provide effective Tax Mitigation Planning Strategies. Four major planning areas include: Retirement Planning (income above $300K), Legacy Planning (net worth above $2.5MM), Charitable Planning (net worth above $2.5 MM), and Business Planning (revenue above $2.5MM).

Consider the tax-saving potential allowed via IRCs.

GROUP 1

IRC § 1031 like kind exchanges allows the owner of real property to sell one property and acquire one or more replacement properties without recognizing the gain at the time of sale. The gain is not forgotten; it is merely deferred to a more opportune time. Download a list of curated DST 1031 replacement properties now. Deferring the capital gain on the sale of an investment property is an opportunity for tax efficiency because you keep the gain and redeploy into further investments, paying taxes later after you have grown the gains.

IRC § 179 deduction allows the users of the deduction to expense rather than amortize certain business related expenses. I use it differently.

IRC § 170 (h) allows users to make contributions for charitable purposes that result in a reduction in tax liability.

IRC § 7702 allows users to make after-tax contributions to a Life Insurance Contract where withdrawals can be made tax free. This is similar to what a ROTH type of retirement account can do.

Group 2

IRC § 42 allows users to take a tax credit for investment in qualifying low income housing.

IRC § 47 allows users to take a tax credit for investment in qualifying historic structures. This is a specialized form of a Conservation Easement.

Group 3

These code Section have come up in discussions I’ve had with other tax professionals.

IRC § 469 Passive Activity Loss Limitations – This strategy affects users who have significant Passive Activity Losses (PALs).

Required Minimum Distributions (RMDs). There are two strategies regarding RMDs, one of which is cover by Treasury Decision 9673. These strategies affect users who are obligated to take RMDs from their retirement accounts, but who would rather not take them.

I only provide this comprehensive Strategic Tax Mitigation approach to clients through and with the approval of tax professionals because I’m neither an accountant nor an attorney.

 

The use of some or all of these tax-planning strategies has provided my clients with tax relief, often into six figures.  I consult with investors and their tax professional to analyze financials in which Strategic Tax Mitigation™ may be appropriate.

 

©2016 IREXA Financial Services | Wealth Strategies. All Rights Reserved. Privacy Policy

All investments involve risk. Outcomes are not guaranteed.

*IREXA Financial Services | Wealth Strategies, SANDLAPPER Securities, LLC and Sandlapper Wealth Management LLC do not provide legal or tax advice.

**Investing has risks; performance is not guaranteed. Securities offered through SANDLAPPER Securities, LLC (member FINRA/SIPC) and advisory services offered through Sandlapper Wealth Management, LLC an SEC Registered Investment Advisory Firm. Robert Boggess is an independent representative of SANDLAPPER Securities and independent advisory representative of Sandlapper Wealth Management. IREXA Financial Services/Wealth Strategies is not an affiliated company with the Sandlapper Companies or CPAAcademy.org. No offer to buy or sell securities is being made. Such offers may only be to qualified accredited investors via private placement memorandum. Neither Sandlapper nor IREXA are tax advisors. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Investments are not guaranteed or FDIC insured and risks may include but are not limited to complete loss of principal investment. Risks detailed in a private placement memorandum should be carefully reviewed, understood and considered before investment. Changes in the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made.

Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss. NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by IREXA Financial Services/Wealth Strategies, SANDLAPPER Securities, LLC, or any affiliate, or partner thereof (“Sandlapper”). IREXA Financial Services/Wealth Strategies does not warrant the accuracy or completeness of the information contained herein.

FINRA Broker Check: Check the background of this investment professional on FINRA BrokerCheck.