3 Mistakes That Sky Rocket Taxes for Wholesaling CEOs
Wholesaling CEOs must avoid these three horrendous blunders if they want to prevent issues with the IRS and maximize their net profits…
Taxes might be the least favorite part of business for most wholesaling CEOs, but ignoring best practices and risks is only going to bite you back later.
Even if you think you have a pretty good handle on taxes, smarter and more advanced real estate investment strategies and tactics can lead to double digit improvements in returns. Those that take the ‘head in the sand’ approach may not only end up paying more to the IRS in interest and penalties but could find themselves in seriously precarious positions.
Remember, the whole goal of wholesaling houses is to actually make a net profit, and the penalties for evading the IRS aren’t just big tax liens and massive hits to credit scores, but can include ongoing wage garnishment, property seizure and even jail time.
So what fatal mistakes must you avoid as a wholesaling CEO?
1. Watch Your Closing Documents With A Microscope
The huge Amazon rainforest sized stack of real estate closing papers (and double that for those engaging in double closings) leads many wholesaling CEOs to glaze over and just sign away without reading them. All most want to know is how big their check is. If it’s not right you can always battle over the typos or sue the title company later right? But what if they go out of business as many have recently?
As the IRS has recently stepped up its mission to bring in more tax revenue for the current administration real estate investors around the country have been discovering they are being hit with massive, unexpected tax bills. This is not about the recent scandals in the news or targeting of any specific groups. The problem is that wholesaling CEOs are discovering paperwork mistakes at closing have resulted in masses of additional income being reported directly to the IRS. This is money the investors never actually received. It can stem from typos in social security numbers, parties to the transaction and overlooking line items that should have been subtracted from the net proceeds.
The last thing you want is a call from an IRS agent telling you that you owe $1 million in taxes and not being able to defend yourself.
2. Poor Record Keeping
The entrepreneurial, action focused mindset that most wholesaling CEOs are blessed/ cursed with often leads to horrible record keeping habits. Many fail to track their check writing, save receipts or save accounting records in any intelligent format.
This may not seem like a huge issue in May or June when the money is rolling in an tax time seems like another world away. However, when it does come around and you are pegged for an audit or you are flagged for not filing taxes for several years and you can’t back up your expenses, you’ll end up paying far more taxes than you should. This can easily eat up thousands of dollars you thought you had gained from flipping houses. So most will find the small amount of time it takes to organize their receipts or hire a part time bookkeeper well worth it.
3. Failure to Plan Ahead
While you might detest taxes and prefer delegating it all to someone else, there is really no excuse not to have a tax plan for the entire year, as well as a macro one. While you may be passionate about rushing out there to flip deals and doing battle haggling on the phone, you’ll have to work twice as hard, twice as long to make less money if you haven’t crafted a plan to minimize liability and maximize deductions.
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