40 thousand and tax

I run a small buisness,and this year i have saved about 40,000 . Now i can either invest in new equipment or be heavily taxed on that part of my profit. I can write off the equipment purchase completly . I would rather buy a small property to rent and then sale .Is there a way i can use my buisness profits without paying the tax to invest in real estate ? Dark

Well , no comment here ? Its a simple question . I have 40k In profit from my small buisness . How can i invest the cash in RE instead of the buisness and keep the taxes down ? Dark :-\

Have you spoken with your accountant?


You can’t. If you choose to use your business income to invest in real estate you are doing so with AFTER tax income.

Unless you use the real estate to better your business. Buy a building, open up another location of your company, hire someone to run that location, and then you can write that 40K off. (If I understand write offs correctly) This way you can be building up and furthering the profitability of your business AND you will be creating equity wealth, which, if you play your cards right, you would be able to retire off of. Make it a win win situation for both your biz and your investments.
If you want to take a simpler route, you can still put that 40K into real estate, but if you also form a “Real Estate Investing Company”, why wouldn’t you be able to write your purchases off as a business expense. I am no accountant, so check accounting laws before doing any of this. OR, if you don’t want to start a Real Estate Investing Company, and your current business has inventory and stock, buy or build some storage areas for the common folk in area that will need them, store your own inventory in one of the spaces, collect the storage rents from people for profit, AND write off that 40K that you used to buy the storage bins.
Or you can pay taxes on that money and use what is left over for a downpayment on an apartment building and make profits off the rent. (Always make sure the numbers make sense though and profit will be made)
Hope this gets your creative juices flowin"

Jay Dee,

Real estate is a capital asset. No matter whether the real estate is acquired as business property or as investment property unrelated to the business, the cost of the property is not “written-off”.

Real estate improvements can be depreciated, but not expensed. Real estate is purchased with after tax dollars.

Ok. Then is there some way that he could use the money toward the business in a way that would allow him to also be investing in real estate? You are saying that if I had a business and wanted to buy office space for that business, then I would not be able to write that purchase off? What if I were renting the office space, would I then be able to write that rent off? And if that is the case, then wouldn’t the mortgage payments that I pay on my office space be able to be written off each year?
Just curious.
JayDee :slight_smile:

That is what I am saying. Capital assets are depreciated over time, not expensed. If the business bought office space, then the building would be Section 1231 property, depreciated over 39 years.

What if I were renting the office space, would I then be able to write that rent off?
Yes, the monthly rental payments for the office space are expensed against the operating income for the business.
And if that is the case, then wouldn't the mortgage payments that I pay on my office space be able to be written off each year?
Not entirely. Only the mortgage interest paid on the loan each year is expensed as business interest. The portion of the mortgage payment that is applied to the loan balance is not an allowed expense. Instead, the loan balance reduction is offset by an increase in owner's equity.

The answers to all these questions also apply to your investment residential rental property. Establish an LLC to own and operate rentals. When you purchase a rental property, you do not take an expense for the full purchase price. Instead, you capitalize the property and recover the cost of the building structure over 27.5 years by taking an annual depreciation expense against rental income. Similarly, for the mortgage payment, only mortgage interest is written off while the portion of the mortgage payment that reduces the loan balance is not an allowed expense.

Hmmm…ok. Sorry Darkstar, my bad. See why knowing accounting laws help? :slight_smile: Guess you will be obligated to pay tax on that 40K. But you will still have a sizeable amount that you could use toward a real estate purchase of some sort.
Good Luck!

have you looked into opening some sort of 401k or IRA?

you might be able to stuff 40k into it and only end up paying 7.875% payroll tax[or whatever it is]. then you can use that to invest.

my CPA set me up with a 401k pension plan combo that I can use to buy real estate with.