"Taxes aren’t just bills, they’re tools. Learn how to turn tax rules into income streams, even a kid can understand."

Rise Capital Investments

(Even a Kid Can Understand!)

Tax code is complicated, which is what makes each taxpayer's situation so unique. Because it's complicated, many just throw up their hands and don't bother to try to figure it out. They may even hire someone to do it for them and aren't informed enough to even ask the right questions to their professional advisors. This results in mismatched advice and can cost untold dollars in overpaying in taxes and professional advisors.

Once we see how much money we can save by paying less personal or business taxes, the subject can become a lot more interesting! In our case, we treat our tax plan as one of our multiple streams of income that we can use to invest, give, or play more.

Learning the basics is the best place to start building on our knowledge of how taxes affect us personally. Let's have a little fun with it by explaining it the same you'd explain it to your kids inspired by Nicolas Boucher using the world’s oldest business model: 🍋 The Lemonade Stand, plus Real Estate Edition to start to understand how investing can help us save taxes.

INTRODUCTION

Taxes might sound complicated, but at the end of the day, they’re just how the government pays for things we all use—roads, schools, libraries, and, if we’re lucky, clean public bathrooms at the park.

💰 Income Tax

You make $10 selling lemonade. But your parents helped you set up, you might be using their driveway, and now you owe them $2. That’s income tax.

When employees or companies earn money, they give a portion to the government. The more you make, the more you pay. The IRS plays the role of “parent” here, except less helpful and more likely to put you in "time out" for not paying.

Investor version: If you invest in private loans or syndications that pay you cash flow, that income may be considered active and taxed at the higher rate for ordinary income. Passive income from rents are taxed at a lower rate than active income.

⏳ Deferred Tax

You promise your parents their $2 share... but ask if you can pay them next year. They say yes as long as you reinvest that tax savings back into your business according to their rules. That’s deferred tax.

Investors see this with retirement accounts or depreciation: you get to keep the money now, but taxes are still due later. If you get good at deferred taxes, you can keep kicking the ball down the field for many, many years.

Investor version: In real estate, appreciation and depreciation usually aren’t taxed until a sale, thanks to long-term capital gains rules and depreciation recapture. That means you might earn paper gains without paying taxes for years until a cash-out event occurs. Money from a refinance is debt not income and not typically taxable.

🏢 Corporate Tax

Now your lemonade stand is a full-blown business with branding, custom cups, maybe a sibling has partnered up. When businesses make a profit, they pay corporate tax. The rules are different from personal income tax, but the concept is the same: profit gets taxed.

Investor version: Most real estate investments are held in LLCs, which are pass-through entities and don’t pay corporate tax. But REITs and C-corp investments do. Understanding your structure helps you know how returns are taxed.

👷🏼♂️ Payroll Tax

You hire your friend to make the lemonade and smile nice for the customers. You pay them $5 they have to pay income tax on, but you also have to send a little extra to the government on their behalf. That’s payroll tax.

Employers pay taxes on behalf of employees, and employees pay part too. It's a shared burden that funds things like Social Security (payments to old retired people) and Medicare (healthcare for old retired people).

Investor version: Passive investors don’t pay payroll tax on distributions, but active real estate professionals may owe self-employment taxes on earned income like commissions or asset management fees, depending on their company tax structure.

When your little sister is cuter than you are, you just hire her to sell lemonade and pay taxes together.

🪙 Sales Tax

You charge $1 for lemonade, but when your city asks you to collect an extra 10 cents for them, that’s sales tax.

Sales taxes are added at checkout and used by states, cities, or counties to fund public services like roads, parks, stadiums, or running the government. Most people don’t love paying sales tax, but at least they’re predictable. Plus, they're customizable because the less stuff we buy or sell, the less tax we pay.

Investor version: Sales tax doesn’t usually apply to investment income or property sales—but if you're flipping or managing short-term rentals, you may need to collect and remit sales or lodging tax depending on your state or municipality.

📉 Depreciation

Your lemonade stand gets older. It starts to wobble. Your cooler gets a crack. Even if your stand still works, if you sold it, it would be worth less each year. You can deduct that from your income. That’s depreciation. Real estate investors use this to reduce taxable income on the buildings, even when the land is gaining value.

Investor version: Real estate investors get to deduct a portion of a building’s value every year as it “wears out,” even if it's actually increasing in value. This paper loss is called depreciation, and it can offset income on your K-1. Some deals accelerate this with cost segregation for a front-loaded benefit.

👴🏼 Retirement Accounts

You decide to stash away some of your lemonade earnings into a special jar you can’t touch until you’re older. That’s a retirement account—like a Roth IRA or Solo 401(k). Sometimes you pay taxes before putting it in (Roth), and sometimes you pay later (Traditional). Either way, it's tax-advantaged.

Investor version: Investing from a self-directed IRA or 401(k) lets you grow wealth tax-deferred or tax-free, depending on the account type. You can’t usually use depreciation, but interest income from private lending is ideal here because it’s otherwise taxed at ordinary rates.

Cost Segregation

You realize your lemonade stand has parts: the table, the sign, the cooler, the umbrella. Instead of saying it all lasts 27.5 years, you say the sign lasts 5, the cooler 7, etc. That way, you get more depreciation up front. That’s cost segregation. It's why some real estate investors have huge paper losses even when they’re making money.

🚫 Taxes That Don’t Usually Apply to Real Estate Investors

Customs Duties: These are taxes on importing goods—not relevant unless you're investing in businesses that do international trade. Transfer Pricing: Applies to large corporations doing business across borders—not an issue for most private investors. VAT (Value-Added Tax): More common in Europe. U.S. investors typically won’t encounter this unless investing internationally.

CONCLUSION

Taxes aren't just for CPAs and spreadsheets. Understanding the basics—like which types of income are taxed, when they're taxed, and how to structure your investments—can make a big difference in your real-world returns.

Whether you’re a kid with a lemonade stand or an adult with $250,000 in a private fund, the tax code rewards certain behaviors. Learn the rules, use the tools, and let your money work smarter.

If you like what you're reading, let's invest together! We help you build a passive income strategy based on boring, reliable returns? Join our accredited investor portal and see what we’re working on.

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