Articles

A cost segregation study reclassifies parts of a building into 5, 7, and 15-year property so you can deduct them now instead of over 27.5 or 39 years. Studies run $3,000 to $15,000. It pays off when you have income to offset and can use the loss, and it backfires when you cannot.

Rental property depreciation lets you deduct the cost of a building over 27.5 years for residential and 39 for commercial, which often produces a paper loss on a property that is putting cash in your pocket. It is one of the best deductions in the code. It is also not free. Every dollar of depreciation reduces your basis, and when you sell, the IRS takes it back as unrecaptured §1250 gain at up to 25%. And you do not get to opt out: the rules reduce your basis by the depreciation you were allowed to take, whether you claimed it or not.

Real estate belongs in an LLC, and for most investors the right structure is a holding company: a parent LLC that owns a separate LLC for each property, so a lawsuit against one property cannot reach the others. The reason is partnership taxation, which lets you pull appreciated property out tax-free later, something a corporation can never do. Never hold real estate in a C-corp or an S-corp, because getting it back out triggers tax you cannot avoid. And know this: an LLC only protects you if the deed is actually in the LLC's name. An empty LLC with the property still in your name protects nothing.

Self-rental is when you own a building and rent it to a business you run. The tax code treats it asymmetrically: net rental income is recharacterized as non-passive, so it cannot be offset by passive losses, while net rental losses stay passive and get trapped. A grouping election can fix that asymmetry, but it is generally irreversible and it changes what happens when you sell. The deduction is not the real reason to do this. The real reason is that you can sell the business one day and keep the building.

The Augusta Rule (IRC §280A(g)) lets you rent your home for up to 14 days a year and pay zero tax on the rental income. Business owners use it by having their company rent the home for legitimate meetings: the business deducts the rent, and you receive it tax-free. It is real and it is legal, but the honest savings are usually a couple thousand dollars a year, not the $30,000 the hype promises. It only works if your business is a separate entity (S-corp, C-corp, or partnership), the rate is defensible, and the meetings are genuine.

A ROBS lets you use 401(k) or IRA money to fund a business without the 10% early-withdrawal penalty or income tax. It works by forming a C corporation whose retirement plan buys the company's stock. It is legal but heavily audited, and a single compliance failure can disqualify the plan and make your entire rolled-over balance taxable in one year.

A cash balance plan is a type of defined benefit pension plan built to look and feel like a 401(k), with a hypothetical account balance that grows from an annual pay credit and a fixed interest credit. The draw is the contribution ceiling. Because the limit is age-based, an older high earner can shelter well over $200,000 a year, far beyond a 401(k), and stacking the two pushes the total higher still. The trade-off is a multi-year funding commitment, an annual actuary, and a required contribution for any employees. It is the biggest legal tax deferral most profitable owners have never used, and it is not for everyone.

Small business owners have five main retirement plans to choose from: the Solo 401(k), SEP IRA, SIMPLE IRA, traditional or Roth IRA, and Defined Benefit or Cash Balance plans. The right one depends on your income, your business entity, the salary you pay yourself, and whether you have employees. Solopreneurs and high earners usually get the most from a Solo 401(k). Owners with rising income who want to shelter the largest amounts look at adding a Cash Balance plan. The plan you choose sets a ceiling, but how much of that ceiling you can actually reach is a function of how your business and your pay are structured.

A fringe benefit is any form of non-wage compensation an employer provides to an employee. The IRS treats most fringe benefits as taxable wages unless a specific statute makes them tax-free. For C-corp employee-owners, the benefit menu is generous: health insurance, group-term life, education, dependent care, transportation, and HRAs flow through tax-free. For S-corp owners with more than 2% ownership, most of those benefits get added back to W-2 wages and the cafeteria plan is off limits. The entity choice quietly drives the planning math for every fringe benefit you provide yourself.