In this three-part series, we’re going over the three key steps it takes to become a net worth millionaire real estate agent in only a few years.
Step 2: Tax efficiency
Step 3: Passive income streams
Now let’s talk about taxes...everyone’s favorite topic.
Have you heard yourself saying “I need to close three more deals this month to pay for last year’s taxes”?
Or something similar?
It’s common for a realtor to pay an annual wage worth of taxes to the IRS. I even remember one year owing $60,000 in taxes. A big reason why real estate agents owe so much in taxes is because most haven’t mastered tax efficiency in their business.
To become a millionaire real estate agent, you need to make more money. But the moment you make more, you owe more in taxes. Therefore, you need a plan for tax efficiency so you can worry less about paying off the IRS and more about putting that money towards investing (that’s a hint for next week by the way!)
Now, there are plenty of ways to build tax efficiency into your business.
Here are a few ways I was able to significantly reduce my taxes and increase tax deductions:
- Closely tracking mileage, business meals, home office deductions, and more.
- Creating a self-directed 401(k): Contributions are tax-deductible
- Setting up an HSA: Contributions are tax-deductible as were the premium payments for my health insurance policy
- S-electing my LLC to save on self-employment tax
- Using the real estate professional designation and losses from rental properties (renovations and depreciation) to offset my self-employment income
You’ll probably need a CPA to discuss a tax plan, but it’s critical to take advantage of every tax deduction possible, especially for realtors.
Tax efficiency shelters your income, meaning it puts more in your pocket at the end of the year, so you can invest in more real estate and build your wealth.
The final step (and my personal favorite step) of the process to becoming a net worth millionaire agent is to build passive income streams.
We’ll dive deeper into the topic in the next blog post.