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1. Income tax liability is derived by multiplying taxable
income by the applicable tax bracket rate. The lower the
taxable income, the lower the rate, thus the lower the tax
liability. Herein lies the secret to significant tax savings.
The goal for tax planning is to reduce taxable income.
That's the primary goal of all tax planning. Let's find out
how this is accomplished.

2. WAYS TO LOWER TAXABLE INCOME:

3. 1. Spread income over time

4. 2. Spread income to various entities

5. 3. Group income and expenses

6. Knowing something about each of these concepts will
permit you to intelligently implement a sound tax
program. With the assistance of a competent tax advisor,
your tax savings will be significant.

7. Spreading Income Over Time

8. Real estate, especially mid-sized apartment buildings,
provides the opportunity to spread income over several
years using the installment sales method of reporting. By
accepting a relatively low down payment and spreading
the principal payments over several years, total taxable
income for any one year is reduced.

9. In the tax-deferred exchange method, income can also be
spread over time. Both methods can be structured to give
you maximum reporting flexibility.

10. Spreading Real Estate Income to Various Entities

11. Spreading income to various entities reduces the income
any one entity has to report. By transferring ownership of
assets to corporations, partnerships, relatives, or trusts, an
effective transfer of income can be accomplished as well.

12. Relatives in low-income brackets can be paid for services
provided. As long as these services represent legitimate
business transactions, spreading income in this manner
can save you thousands of tax dollars.

13. When operating entities have dissimilar tax reporting
years and basis (cash or accrual), it's possible to spread
income and expenses over different years to take
advantage of the tax laws.

14. Grouping Real Estate Income and Expenses

15. Grouping income and expenses can lower taxable income.
Real estate provides the flexibility to implement this kind
of tax planning tactic. Apartment building investments are
a good example because they fit well within the definition
of active participation rules (which allow a $25,000 write-
off against salaries and other active income). This write-off
alone represents a substantial tax savings to many
individual investors.

16. When changes in either income or expenses can be
projected, the benefits of grouping are phenomenal. For
example, refinancing will create a higher interest expense
deduction to offset anticipated increases in rental income.
Short-term loan contracts with high points will accomplish
the same thing.

17. If expenses are projected to increase, offset them by
increasing receipts from installment contracts. Avoid
reporting income when notes become due by
renegotiating an extension of time. If the senior mortgage
matures before your note, subordinate it to new financing
to extend the due date.

18. Investing in midsize apartments gives you the advantage
of acquiring properties outside your hometown. As a
result, travel and transportation expenses related to your
investments can be deducted. These deductions should be
timed to give you the maximum tax savings using the
"grouping method." By rearranging the selling price and
interest rate (within certain limitations), it is possible to
create either higher or lower interest and/or depreciation
expense deductions.

19. Residential income capital gains and losses can also be
grouped to maximum tax benefits. With restrictions,
capital losses may be used to offset capital gains plus
additional amounts of ordinary income.

20. These represent only a few of the many techniques
available. Always consult your tax advisor to assist you in
making these moves. Understanding these concepts may
save you time and money.

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