This episode breaks down tax filing strategies for land investors managing multi-state operations and complex deal structures. Operating with 41% margins on $6M+ in funded deals requires navigating transactional funding complications (where taking title creates $100K+ gross income discrepancies on 1099s despite only netting small fees), note sale assignments, and state-specific requirements like Louisiana’s foreign LLC registration. The central challenge is balancing conservative tax reporting that overpays versus aggressive strategies that report actual net income while managing potential audit exposure.
Key Takeaways:
- Accounting method choice is legally yours Select FIFO, LIFO, or other methods to minimize taxable income, but maintain year-to-year consistency to avoid IRS red flags.
- Internal bookkeeping saves $5K+ annually Tagging and categorizing transactions before sending to CPAs dramatically reduces billable hours versus outsourcing the grunt work.
- Transactional funding creates 1099 exposure Taking title on same-day closes generates 1099s for full gross proceeds despite small net fees, creating potential $100K+ tax bills if reported conservatively.
- Report actual income, not 1099 fiction Document defensible positions and report true net income rather than inflated 1099 amounts, shifting audit burden to understaffed tax authorities.
Listen to the full episode for detailed examples of multi-state tax complications and specific strategies for defending aggressive reporting positions.
(Podcast transcript below)
Welcome to Get Serious, we’re at Serious Land Capital. We have funded over $6 million of vacant land deals and have industry leading 41 % operating margins. Today I wanted to go over some thoughts on taxes for anybody who is filing returns or has a CPA firm or accounting firm working on their behalf. You’ve probably been having a lot of back and forth.
here toward the start of the year, prior to the taxing deadline. are an area, I don’t recall the total length of the tax code now, like it’s somewhere well over thousand pages that has just like exploded in length and
complexity. yeah, I think especially over the last 40 to 50 years and, you know, it seems every single year we’re learning something new and that I, I think the direction where I want to take this is just, you know, there, there are, there is the tax law, right? Like there’s the letter of the law that you have to follow. specific to your
particular situation and whatever numbers are on your accounting. Everybody knows, however, like there are multiple ways to handle accounting. For example, you could use like a first in, first out accounting method or first in, last out counting method, or is it last in, first out? Now I’m forgetting. It’s been a while since I’ve done that. I mainly utilize that when I was personally handling
some crypto tax returns and so forth in the past year. And so that can dramatically impact your taxable income. And the key is that you might have the right to choose which accounting method you want to use. It’s just you have to be consistent across the years to demonstrate that you’re not switching things around on how you’re accounting year by year.
in the eyes of the IRS trying to game the system even more. And so, while there aren’t loopholes per se to taxes, there is a tax law, like there is more choice in the matter in what type of accounting methods you want to utilize and then potentially how aggressive or conservative you want to be on some of the reporting. Again, I should…
mentioned, know, I’m not a CPA, not a tax specialist here, consult your own accountant and CPA for your own personal tax advice here. I’m just sharing a few thoughts within our own experience and, you know, an area of the business and just personally, like I’ve just taken a lot of interest in and continue to learn new things about because, you know, my own personal taxes have been more complex with various investments.
Um, and again, it can make a really dramatic impact, um, on what your take home may actually be. Uh, uh, you know, especially as you, um, you know, get up the, uh, uh, food chain when it comes to, to income and across many different investments. Um, so for instance, you know, with that kind of general background there, I mean, again, there’s tons of different directions we could take here. Yeah. I was having.
a lot of back and forth with CPA firm who we work with for Sirius Land Capital, is a much longer standing relation, our business relation for my business partner Everett. And he had worked with these folks for another business that he had had in the SFR space. And so they continued on from the land side.
and have done very, very solid work for us. And, know, the thing is, and credit to Everett for setting this up, but like we keep super clean accounting, which literally saves us thousands of dollars per year to not have to have, you know, both a separate bookkeeper. Like we do our internal bookkeeping. we don’t need to have a separate, bookkeeper and, you know, have to spend, you know, again, thousands of more dollars for our CPA to
go through all of our receipts and figure out what expense or income is related to what asset and so forth and how things should be tagged. So we try to make that as clean as possible because similar to lawyers with CPAs, you want to reduce the total amount of time necessary for them to go over your books and do the work for you because then the smaller your bill is going to be. And we’re still complex enough that we’re paying roughly
between five to six K per year. But it could be substantially larger if we didn’t do so much upfront work. And even when we do all this upfront work, like we’ve had enough different type of transactions that like there’s inevitably more questions. We operate in a whole bunch of different states too. And that was a bigger learning lesson. I know I’ve podcasted about this before. You you have different state withholding taxes and how are you going to account for this?
in especially in relation to a funding model when you know, might be distributing our share of the profits, but you know, we’re on the hook for the actual full gross income from a state perspective that might only hit us, you know, a year later potentially. So, you know, that’s an open question. You know, some of what we found that some of these states have
more regulatory requirements or setting up IDs. For instance, we had never worked in Louisiana up until this last year and we never had to register another foreign LLC. I know a lot of folks will be more conservative for tax reporting and some title companies, it’ll come up in the title commitment, hey, you need a foreign LLC. We have always been able to avoid that.
except in this case for Louisiana, which, you know, we didn’t need to close on the property, but in order to properly report taxes within the state of Louisiana, we needed a certain ID. And for that, we needed to form an LLC, foreign LLC rather. Unfortunately, it was, I thought it was going to cost a lot more even using AI to figure it out. We thought it was going to be like maybe 500 bucks. It seems we were able to do it for free. What we’ll see when all the documentation is finalized here.
For example, that’s something that came up when our CPAs were reviewing the text work and like, hey, you guys have to do this. We wouldn’t have known that, you know, right off the bat here. Or another piece that has been going back and forth is like a couple of the note sales that we did last year. So we sold a couple notes to a different note buyer, but there was some confusion.
you know, on the behalf of our CPA or it’s like, okay, the, the, you know, base HUD for the Dispo is indicating like the full gross purchase price from the buyer. And then, you know, we are. Initially the lender, for the mortgage, and then we’re basically assigning that mortgage to the note buyer and the note buyer.
is paying us a fee for that assignment. So we try to include that all within the closing docs, but it can be a little complex from a CPA and accounting perspective, and they’re not used to dealing with that. So we have to work through exactly what that looks like and making sure we’re just reporting the total amount of income that we received. And a critical piece here is we’re getting it complicated because you know when you’re selling properties, most title companies
will have you sign a 1099 and they will report the gross proceeds to, I believe, both the IRS as well as the state tax authority, whatever state that you’re operating in. And so our CPAs are getting confused because it’s like, OK, well, they might have reported this
you know, total gross income, you know, via the 1099. And that’s not necessarily matching up with what you guys are reporting as your total income here. And they may throw a bit of a fit from a reporting, you know, where are they getting their money? Which can throw things off a bit, certainly here, you know, technically the state and the IRS should still be getting all of their money because any time well,
You know, for instance, you know, if the note buyer picks up a note, like they’re still going to be getting income, you know, perhaps over a longer period of time. But, know, they’re still going to have to report that and should be to the state as well as the IRS again, that this gets complicated fast, right. And they’re, you know, within the title company system as well too. So all of that should be reported. It’s just, you know, because we were the original ones on title. It’s like, okay, so the IRS.
going to want all of that share initially, or do they have to figure out down the line where that remainder of the taxable income is coming from? Similarly, for transactional deals, we handle transactional deals a little more uniquely. Again, most of the times folks will do D2Trust, for instance, effectively a lien.
for whatever the same day or a couple of day close that the close is actually happening on and the transactional lender won’t actually take title to the property. They’ll just have that first position lien. We prefer to do a double assignment. So we will get the A to B side and the B to C side of the purchase agreement.
assigned over to us. And so even if it’s the same day close, we’ll actually take title in between because from a downside scenario, it’s just a bit more protective that actually came into play in a major way to our benefit last year when a C buyer bailed on the transaction and we had to take over a property when if we just had a lien, we would have been stuck with a nasty foreclosure situation that I think we would still be in the middle of. And there was like over a couple hundred thousand dollars at stake there.
Nevertheless, doing it this way with the assignment, we’re taking again, title here. so technically like that total income on the transactional deal for the C buyer that’s being attributed to us, even if we’re only taking like a couple thousand dollar fee. And so.
some of the times the title company might just remit our principal plus our feedback to us and then send a separate wire to the originator who brought the deal. Sometimes they’ll send the entire proceeds back to us and then we have to redistribute a separate wire back to the originator. like, again, funds can move around in a little bit different pathway. Ultimately, you know, we have the proof of
what was our actual net income by having the various loan and wires back in. And so like we only net a small amount. But again, in the eyes of the IRS and the state, they just want to ensure that they’re getting paid. And if we were the ones on title, they’re sending in a 1099 or the title company is sending a 1099 in on our behalf. And so we might be hit with a much larger tax bill.
down the line, which would kind of destroy our, you know, income, especially at these like larger, larger price deals where, you know, there might be a spread of like a hundred plus thousand dollars that, need to be reported. And so that would really cut into our, you know, total tax, well, well, the total net income that we made from that particular deal, if not just erase it entirely.
So that’s something we’re, still going to figure out. then that’s why, like sometimes with these tax situations, like you have to continue to learn and where, like I mentioned at the start of this, you can be more aggressive or conservative with how you want to be with reporting the taxes. you know, CPAs by nature are probably going to be more conservative. but ultimately you as the client.
can direct them, know, they’re only gonna do what they’re comfortable with. You kind of have to find a happy medium. know, generally I’m on the more aggressive side of like the ask for forgiveness versus permission from a tax perspective, like so long as you can make a reasonable argument, even if you do get audited that you were following the correct directions and you can show the exact paperwork on why you approached it this way.
like that to me is a more appropriate strategy, especially when we’re not like, you know, one of the biggest companies in the world that’s going to have more scrutiny around us. so we just advocate for our CPAs. Hey, like even if this isn’t, you know, letter by letter, what you might, you know, by the tax law have to report here. Like this is truly the only income that we got like 2000 bucks or 10,000 bucks, whatever. just report that if there’s fallout from the IRS or the
the state, whatever, we will deal with it later and then we can update our processes accordingly there. But I would rather take that approach versus, you know, let’s pay a whole bunch extra when, yeah, of course the tax authorities are gonna take the money. Like if you send in the money, you’re probably not gonna audit and fix it later. That’s almost never the case. Whereas if you can try to retain funds earlier on and put the burden of proof back on the…
or the burden of work back on the tax authorities to look at that deeper. If they do have an issue with that, which again, probably a lot of these places don’t have it, look how many job cuts have gone in within the IRS and who’s actually going to be audited. Again, to be clear, my intent with this is not to provide advice. I’m not saying do something illegal or use tax evasion or whatever.
But, you know, tax mitigation and having a strategy that is personally more comfortable with you and that you can work with a CPA who can guide you accordingly and at least mention, know, Hey, what’s the possible downside here is something that we really have to think deeply about as business owners. You know, sometimes you might get slapped on the wrist and you’ve learned something new and it’s like, okay, now we have to adjust our strategy, how we’re going to report the income and so forth.
Do we have to withhold more fees, anticipated taxes from the originators who work with us? So then a year down the line or whatever, we have to report that and send it in to the IRS or state, whatever. And then we know our bases are covered. That would probably be even the more conservative approach, but it’s still up in the air to figure that out. Bottom line after this too is that
especially as your business starts to grow and you might work in different states and different type of deals, like having a solid CPA firm is, I think, one of the best investments you can make. It’s really not that expensive to have them. even as AI forward and so forth, like I am personally and so forth, the text code is tricky. I wouldn’t rely on AI just yet to understand all of these.
levels of nuance and different states and the reporting and so forth. it’s, a huge, you know, full day, task to be dealing with that. so, again, I think if you’re going to work with any other third parties, like a higher for CPA is, is one of the earliest ones that, that you should make. so with all that in mind, hopefully this one was, interesting and helpful today. I know a lot of that might have gone over your head and so forth, but you know, again,
core takeaways are that while there is a tax law, you can choose how to do your accounting and how you report to the tax authorities, so long as you are consistent here. And you can choose to be more aggressive or more conservative, so long as you have a rational story and documentation that can prove your way of thinking if you were to get audited and so forth. And finally,
know, hire a CPA firm probably is one of your earliest hires. If your business starts to grow and you start getting involved in some more complex transactions, which I think most land investors are going to qualify for pretty quickly. With that in mind, subscribe and share, send any deals 50 K plus to serious land dot capital. I will talk to you next time. Take care. Bye.
