Capital Gains/ tax reduction strategies

[Livethedream]

Hello,

Looking to start planning a long term financial plan to reduce taxes as much as possible.

I am 29, married and live in California. We currently have multiple income sources.
        Me: public worker
        Wife: partner in family llc with real estate "rentals"
        Us: personal rental properties.

Our plan is to have house paid off, max out both Roth IRA's by Ira backdoor rollover each year, and attain enough rentals to replace most of my income + health insurance costs for me to "retire" and focus on rental properties and an occasional flip.

On top of investing in rentals and Roth IRA, I'm wondering how else we can invest money long term with the lowest possible tax consequences.
Our net income for 2014 was about 100k and will continue to rise about 10k a year for about 3-5 years and who knows how much more further in the future.


Note* we have to use backdoor Roth/Ira conversion because of a tax reduction strategy in how profits and income is shown from the llc, basically it shows our taxable income higher then what we receive.

[seattlecyclone]

Does your employer offer a 401(k), 403(b), or 457 plan? These can be a great way to reduce your taxable income and provide some diversification to your investments beyond your rental properties. Given that you have a high enough income from the LLC that you need to make Roth contributions through the back door, your income is almost certainly in a high enough bracket to make traditional pre-tax contributions a better idea than Roth contributions when you have a choice between the two.

[AlwaysLearningToSave]

Does your employer offer a 401(k), 403(b), or 457 plan? These can be a great way to reduce your taxable income and provide some diversification to your investments beyond your rental properties.

+1.  Also explore a HDHP with a health savings account, because the health savings account is secretly the best retirement account available.  See: http://www.madfientist.com/ultimate-retirement-account/ That might not be available to you as a public employee, though.  Rent is ordinary income, so the more ordinary income you can funnel into tax deferred accounts while you are still working a regular job, the better.

In real estate, your best tax planning tools are going to be 1031 exchanges and timing of your tax events. (EDIT to add: for info on 1031 exchanges, see: https://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031). On your flips, if you are willing to do the live-in-it-while-renovating-it-to-sell-it strategy, you can take advantage of the exclusion for gain on the sale of a principal residence.  See: https://www.irs.gov/publications/p523/ar02.html

Also, make sure that your LLC operating agreements include provisions requiring mandatory tax distributions.  You probably don't want to be stuck paying a tax bill on income that was never distributed to you!