How to Avoid IRS Headaches as a Real Estate Investor

Real estate investors often juggle multiple properties, complex deductions, and fluctuating income streams—so it’s no surprise that IRS issues can sneak up if you’re not careful. A little preparation goes a long way toward avoiding tax-time stress. 

1. Keep Detailed Records 

Maintain organized records for every property: rental income, expenses, receipts, mileage, and correspondence. If you’re ever audited, this will make the process far easier. 

2. Don’t Mix Personal and Business Expenses 

Commingling personal and business funds is one of the most common red flags. Keep separate bank accounts for your rental income and expenses. 

3. Understand Estimated Tax Payments 

If you earn rental income, you may need to make quarterly estimated payments. Skipping them can lead to penalties, even if you pay your full tax bill later. 

4. Handle Back Taxes Promptly 

Falling behind happens, but ignoring it only compounds the problem. A CPA experienced in IRS tax resolution—like Holmes & Associates—can negotiate payment plans or penalty reductions. 

5. Plan Ahead for Capital Gains 

If you’re selling property, planning your sale timing and using strategies like a 1031 exchange can help you avoid unnecessary taxes. 

The IRS can be intimidating, but with proactive planning and guidance, you can stay compliant and keep your investments running smoothly. 

Holmes & Associates helps real estate investors resolve tax issues and create long-term strategies for financial success. Contact us today for support. 

Should You Form an LLC or S-Corp for Your Rental Properties?

When you start investing in real estate, one of the biggest questions that comes up is: Should I form an LLC or S-Corp? The answer depends on your goals, but understanding the differences can help you make a smarter decision. 

The Case for an LLC 

An LLC (Limited Liability Company) is one of the most common structures for real estate investors. It’s flexible, simple to manage, and—most importantly—protects your personal assets. If something happens on the property, your personal savings or home aren’t at risk. 
Tax-wise, LLCs are typically treated as “pass-through” entities, meaning income and expenses flow directly to your personal tax return. 

When an S-Corp Might Make Sense 

S-Corps can be beneficial for investors running an active real estate business, such as flipping or short-term rentals. They may help reduce self-employment taxes, though they come with stricter compliance and payroll requirements. 

Why Your Structure Matters 

The right entity impacts how you’re taxed, how you can raise capital, and how easily you can sell or pass down properties. For many Los Angeles real estate investors, starting with an LLC and evolving to a different structure later makes sense. 

The key is to choose a setup that aligns with your risk level, number of properties, and long-term financial goals. 

Holmes & Associates helps real estate investors across Los Angeles and Long Beach set up the right entity structure for growth and tax efficiency. Schedule a call to discuss your options.