Half of your money is going to taxes. If you don’t believe me, add it up.
I am not just talking about on your paycheck. W2 employees pay the most taxes. Regardless of your effective tax rate and marginal tax rate, W2 employees pay the highest percentage of their earned income in taxes. And that is just the start of it.
When you go to the gas station, when you pay the taxes on your home, when you pay to drive your car, go to the groceries, buy a concert ticket, drive on a toll road, order a pizza. You name it. Everything is taxed. State, federal, county, etc. Half of your money is going to taxes.
As a W2 employee you need to whatever you can to reduce your tax liability every year. You have to get you some deductions. And the small little deduction you get if you own your home and are deducting the interest you pay on your mortgage each year isn’t enough.
One of the easiest ways for you to reduce your tax liability is by buying and owning income producing real estate.
Depreciation is an important tax benefit for investors in real estate because it allows them to deduct a portion of the cost of the property from their taxable income.
Depreciation is calculated by taking the cost of the property, and subtracting the value of the land. The remaining value, which is the value of the building, is then spread over a period of 27.5 years for residential properties and 39 years for commercial properties. This means that each year, the investor can deduct a portion of the cost of the building from their taxable income.
For example, if an investor purchases a rental property for $200,000 and the value of the land is $50,000, the value of the building is $150,000. If the building is depreciated over 27.5 years, the investor can deduct $5,454 from their taxable income each year for 27.5 years.
This tax benefit can be very valuable for real estate investors because it can help to offset the income that they earn from renting out the property, which is taxable. Additionally, it can help to reduce the investor’s overall tax liability, which in turn can help to increase their cash flow from the property.
Additionally, depreciation can also be used to offset passive income from other sources. This can be especially useful for real estate investors who are looking to reduce their overall tax liability.
Look, I am blessed. The more I get taxed, the chances are the more I have earned in income. I get that. I am grateful for it. We live in the greatest country ever and it takes money to run this country. I get that as well.
But let’s be honest, the federal government doesn’t manage money well. The politicians don’t manage the budget we elected them to manage the way we have to manage our own personal ones. They waste so much of mine and yours hard earned dollars and many of the politicians are profiting in some way that we don’t get a benefit from. These are facts.
However, I am not running a charity here and neither are you. I am going to send in my fair share based off whatever the law says I owe. But the hidden taxes of inflation (which is created by our government), and all of the taxes I pay for every other purchase I have in my life. I have to do whatever I can to reduce my tax liability every year and so do you.
To your success and your future.