In life, three things are sure: death, change, and taxes. Most items in the grocery store have a value-added tax (VAT). When you die, your family may pay an estate tax.
The amount you pay, though, can differ between states. For example, Utah has one of the lowest rates for property tax.
You can also explore many ways to reduce your taxes without being accused of tax evasion by the IRS. Here are x of them:
1. Consider NNN Lease
NNN stands for “net, net, net.” It refers to the three primary expenses landlords pass to their tenants:
- Maintenance fees
- Property taxes
- Property insurance
It means that the tenants pay these expenses on top of the actual rent. Still, NNN properties are appealing for both parties for many reasons:
You don’t need to worry about calculating or paying property taxes.
Although Utah tenants may need to pay property taxes, they are still lower than in other states.
Many large companies prefer NNN property since they have greater control over the space. It’s much easier for branding.
2. Complement NNN Investments with 1031 Exchange
One of the techniques of savvy real estate investors is the 1031 exchange. It is a provision in the law that allows owners to defer capital gains taxes by exchanging like commercial properties.
In Utah, the capital gains tax is 15%, but the owner also needs to pay personal income tax for that at 4.95%. If your commercial property could sell for $12 million, it means you owe the taxman a whopping $2.4 million.
The 1031 exchanges have plenty of rules, so you need to learn those. On the upside, you can avoid the 15% tax while still learning passive income.
Even better, you can use the same technique for NNN investments. This way, you can forego paying property, capital gains, and personal income tax from the sale. It’s a win-win for you.
3. Mind Your Estate Tax
Utah doesn’t have an estate tax, but your heirs still need to pay the federal tax. That is if your total estate reaches $11.8 million, which is the present cap. Your beneficiaries cannot enjoy your assets until they pay this tax.
If you don’t want them to go through the hassle, you can consider these options:
Control your assets or wealth.
Secure your assets with life insurance. Your beneficiaries can use the policy to pay the estate tax later.
Give gifts. You can give up to $15,000, which is the maximum tax-free amount. Couples can double that amount.
4. Maximize Your Tax Deductions
You can deduct many types of taxes on both state and federal levels. For example, if you’re a home-based business owner, you can deduct all expenses related to your operations. That includes a part of your utility bill and transportation.
If your property is still under mortgage, you may deduct your taxes with your interest expense paid up to $750,000 of the principal.
Note, though, that to claim these, you need to itemize your deductions. You cannot claim the standard deduction, which is now $12,400. It may be worth it, though, if your standard deduction is less than the itemized ones.
Taxes are tricky and complicated, so make sure you work with experts on that one. Either way, these strategies should help lower your tax dues without worrying about the IRS.