Transcription
What's up? What's up? How is everybody? Why is my camera not working? What the [ __ ] is good?
Okay, >> we can see you just fine. >> That's weird. I can't see myself. So, great.
>> All right, Gregory. Here's what we're going to do today, boys and girls. We're going to do taxes and tax efficiencies because I'm sure everyone today is [ __ ] not feeling so hot. I know I want to jump off the roof of this building that I'm in. So, um, yeah, Greg, you want to take it? Thank you for that, by the way. Thank you for just putting me down easy yesterday afternoon. Everyone got their phone call throughout the day and I was just waiting for you to call me and give me the bad news and you gave it to me. Except Hayden. Hayden's in a good place. So, I think Hayden's pretty good on the tax situation.
>> Still hurt. Still hurt.
>> Yes. [ __ ] hell.
>> You're on mute.
>> How about now?
>> Yeah, you're good.
>> Okay, beautiful. Yeah, I figured better no better time than uh April 15th to go through something like this because uh you either had a tax bill or you didn't have a tax bill and it's a good time to like understand why that may be and how to get ahead of it because yeah, it's definitely not fun having to call Dom and everyone and be like this is how much you owe after a year's worth of planning to get it down. Um, so the more planning you do, the better and you always feel like there's more planning that you can do. So you kind of shoot for 100 and you settle for 80%. And uh, that's just what I've learned over the last 15 years of doing high level taxes. And I'm definitely going to share my screen. Okay, everyone see that? Perfect.
So, kind of for our first tax series here, I'm going to keep it what I feel is simple and I'll kind of stop along the way here. just want to give you guys some good tools to discuss with. I've talked to I've spoken with a lot of you already. A lot of you have great CPAs. You've gotten good advice. You have the right structures. So, there is nothing that you can do better than have a good just arrangement and partnership with your CPA that will kind of scale with you. And a lot of those smaller firms, sometimes midsize, but some of you guys have a lot of international. So they may need to know US, they may need to know Canada, they may need to know international. So we're going to focus on today is strictly US. There are some carryovers. When it comes to international, it starts to get a little hairy for me, but I definitely have CPA firms that we can go to to ask some of the highle questions. So something I can't get you, I will get you guys in contact with someone.
So, the planning that we're talking about here is really a lot of the planning that I've been doing with Dom over the last uh probably five years or so. And we're leveraging a lot of these tax code sections that are just given to us in the tax code. They're available to all business owners depending on the types of businesses. And these are really the areas and tax strategies that we're going to go into. And I have detailed slides on each. So, we're really not going to go into it on this slide. Okay.
So, your biggest planning choices are um I've kind of narrowed it down to what I feel are these six or seven points here. So, depreciation. Who knows what depreciation is? Everyone know what depreciation is? All right, I'll go with no one knows it. So, depreciation is what the IRS allows you to expense or deduct from your income from investments that you're making in certain assets. So a lot of depreciation that we're using is you're, you know, improving a space that you're leasing, you're buying equipment, you have automobiles, you're buying racking, you're buying, uh, machinery. So there's different methods that you're and limitations that you're allowed to take advantage of on all those different types of assets. So, to be honest, from a simple standpoint of you guys being business owners, when you buy new assets, things that you're paying for, you know, $5,000 or more, that's something that you want to be bringing up to your CPA. Hey, how about the racking that I that I purchased or the fixtures or the improvements that I made. I redid the bathroom at year end. A lot of CPAs, they're not in your books every month. And you got to bring this up to them. you want to make sure that you're taking the most advantageous form um of depreciation. So, I'm going to keep that high level because we're going to go into detail on that.
Your entity type, so the type of structure, which we'll also go into, really matters from a tax standpoint. It is going to help you avoid taxes, self-employment tax, income tax, payroll tax, all different types of taxes. We're going to go into detail on that.
Financing. Depending on the structure, it really matters what if you are going to be using financing. If you're going to get a loan, what will you be allowed to deduct? Uh or really what are you going to be allowed to expense from what you're investing in?
Accounting method timing. This is just cash versus acrruel. I'm going to explain the difference of each, the benefits of each and entity funding together. um really just like is everyone contributing in your partnership or is one partner contributing? The type of entity matters in those scenarios. And then when you place equipment in surgeries, meaning you could be opening a business and it's coming close to the end of the year and you have to get that business open, there's a couple of boxes you need to check in order to take those deductions.
Inventory spend and timing is the last one. This is where cash and acrruel really um start to benefit a lot of the CPG brands.
Okay, so bonus depreciation and section 179 there is a there's really a simple difference. So bonus depreciation will allow you to deduct 100% of the asset and these are like physical assets, things that you can touch in the year that you invest in it essentially. You purchase it, you build it, you all those things. So when you're opening a business, that first year is very important. You have a lot of decisions to make. And really bonus depreciation versus section 179 are the two accelerated methods which allow you to kind of recapture your investment quicker.
So for the example of we'll do $100,000 in leaseold improvements. So, if your business started on 1231 and you generate, let's just say you it's December and you generate some revenue in December and you're operating and you had paid $100,000 to build out the space from a bonus depreciation standpoint, you're going to be able to reduce that. You're going to be able to take a $100,000 loss in December. So whether whatever happened in operations happened, but you're going to be able to write off the full amount of that investment. The section 179 does not allow that. And the reason why that might be good is you may not need that loss and you want to carry it forward. So section 179 allows you to take the whole amount of the 100,000 and pretty much have it sit there on your return as like this bar tab that you say, great, I'm going to use this next year. I bring my my I'm already being taxed on zero dollars. I have my tax bracket is 10%. I'll never be this low. There's no reason to make it 0% and save a couple thousand. I want to stay in that 10% bracket as long as I possibly can. So, when you're thinking bonus for section 179, you just want to think of if your operations are showing a loss, bonus will allow you to increase that loss. And that's helpful when you have other businesses that have income. So if you have a business that's making a million dollars in income and you have another business you just opened and you spent half a million dollars on furniture, fixture and equipment, you can take that half a million and offset the other half million of income and depreciation is a great way of doing that.
Any questions so far? I know this is exciting stuff at 4 o'clock.
Does they have to fall uh like under your umbrella or can it just be as long as you're the owner of the entity?
>> Yeah. So the it doesn't have to fall under your umbrella. The way that it will work is to flow through to you. So for example, you have a business making income and a business that you want to show this loss. Both of those just have to flow through to you personally via a K1. It also can be to your escort or it could be to another entity first then to you. But they have to be able to flow to the same place to then offset and they have to be the same type of income. So I think do you guys have real estate?
>> Yeah.
>> Yeah.
>> Yes. Okay. So yours like for example when you're active in real estate you can offset with other active types of income. But if it's a passive real estate, you could have passive income and um or a passive loss that would not offset off something like a business like RAW where we're actively working it. But for so real estate has like that carve out that you got to be careful on. Um, and I remember you guys from like one of the other Pauls, so I just want to make sure that you kind of keep that in the back of your head. But if it's all real estate, then yeah, all that stuff offsets. It's all the same type of trader business. You just have to be careful if something would be considered passive, which a lot of times real estate, the IRS is always fighting to say that it is a passive trader business.
So, do you mind if I give you an example?
>> Yeah, give me an example.
>> Um, so if I to purchase the homes, I sold some assets, but I just used it for like the down payments, would I be able to like how would that work? Like what?
So the assets that you sold
>> So the assets that you sold, what kind of assets were they? Were they active businesses? Were they other real estate?
>> No, they were just kind of like stocks, crypto, bunch of other stuff.
>> Okay. So the game there is um is passive in nature but the real estate is the real estate active
>> like you guys
>> are you like real estate professionals do you know what that is?
>> Yeah we do new beginnings so it's a transitional living.
>> Yeah we do the sober living.
>> Yeah. So then you would be able to offset those two. Yes.
>> Oh perfect. That's what I was hoping.
>> Yep. that's uh those will you'll have no problem. Now, if you're passive, no, you're not going to be able to offset them.
>> And um that's where it becomes difficult when you cash in on stocks or like those types of passive or even like short-term gains. You can't then when you buy those types of assets, you got to make sure that they're active to offset and long-term short-term and long-term also would be the same answer. Then we would just tell our the CPA technically like, hey, this is for a business technically flows into our one.
>> Yeah. Whether or not you used it for that, you're still going to get the same answer. But what you need to make sure is that, hey, when we're doing my tax return, I need to make sure that the loss that I'm generating from the real estate business is enough to offset these gains.
>> Got it?
>> And anything that you have, it just carries over. So like if you have losses in excess of your income, the losses carry forward forever. 25 years. I think it's even longer than that. But yeah, it's not it's never too it's never a problem to have too large of a loss.
>> Perfect. Thank you.
>> It is nice to kind of just use only use enough, keep yourself in those lower tax brackets because eventually you run out and you get to the point where you have you've taken all your depreciation, you've accelerated the depreciation on the homes as much as you possibly can. Um, and um, yeah, in section 179 where it's kind of like best for control, you don't have that much control. So, I don't want to allude you to that. But essentially, you have this tab where you're going to have $100,000 loss for the same example. That $100,000 loss, as soon as your business shows $1 of income, it takes directly from that $100,000. So now you have 99999 of loss and then it just continues to go down. you don't get to decide, oh, this is the year I want to use it. It's just sitting there waiting for you to make a dollar of income. But from a real estate perspective, the best part about real estate is it really shouldn't show income. Um, unless it's like commercial or even then in commercial, like usually the depreciation's enough to always show losses until you sell.
>> Hey, Greg.
>> Yeah, go ahead. Um, it might be worth sharing with them, too, because I know they've got a pretty big real estate portfolio, the cost seg.
>> Oh, yeah, definitely.
>> So, have you guys ever heard of cost segregation studies?
>> No, I haven't.
>> Okay, great. This is a a good call out here. So, a cost segregation study essentially what you would hire someone to come in, they're usually around 2500 to $3,500. you have a CPA firm, evaluation specialist, someone who has the initials to kind of value your home and the contents with within it or the the property within it. And really what they're doing is you buy a house, you pay, we'll say $500,000, and they're going to allocate that purchase price into these asset categories that I've kind of been going through where it's leaseold improvements, furniture, did you buy it furnished or did you guys add that later? And they will cost segregate it. So that way the property like generally a rental property is depreciable over 27 and a2 years sometimes even 39 years which is terrible. You take that you take $500,000 and divide it by 39 years that's all you're going to get the benefit of. Now if you do a cost seg they give you a report that you can actually file your taxes with that say this is exactly what you're allowed to take. This is what you can accelerate. you give it to your CPA and a lot of times your CPA firm will either have a connection that's someone that they trust or if you if they don't I could absolutely give you the individuals that I worked with for Dom's properties as well. That's a must. You cannot file your taxes until you do that. Have to do it without a doubt. It's going to take like a month. So, if you're on hopefully you're on extension or if you're not, that's okay. you could still do a change of accounting method in 2026 which would allow you to then adopt those lives. So you it's not completely gone if you guys did file.
>> And do you have to do it for each property or can you do it just as a whole?
>> Yeah, you do it for each property and they'll they'll take the closing statement, they'll take the tax statements, they take the insurance. There's all these different requests that they're going to have. So, it's nice when you do it right up in the beginning because you have all that stuff handy. You forward it all to them. They come, they actually visit the property and they literally put the report together to get it ready. So, you really want to find someone that's like, "Hey, this is what we're doing. We're going to scale. Give us a good price. We got three properties to start. We're going to keep acquiring more. We want to find someone that wants to partner with us."
>> Thank you.
>> That would be great if we could if you could share that information or contact.
>> Yeah, I definitely will share who I used 100%.
>> Perfect. Thank you.
>> All right. Depreciation section 79. So again, details are not like whether or not you remember them or not. It's just something that I would definitely be bringing up to your your CPA firm. Okay.
So, this we touched on a little bit at the Lunetti event in Miami on Friday. And I kind of wanted to I'm eventually going to kind of build real life examples to kind of show this a little bit, but with the uh fewday turnaround and the tax deadline today, I wanted to at least kind of get ahead of it. So, the vehicle that I like best is the LLC. So the limited liability company structure I like because you get to choose. You could be really the main three structures that you want to be. You can be an escort, you could be a CC corp or you could be a partnership. S corporation is essentially a corporation that is a flow through to you individually. Um, or you could technically have like a disregarded entity that owns your ownership. We kind of went through that where it's like we have probably 95 LLC's for DOM where every single K1 has its own LLC so that we don't list his name. So on the escort that is ultimately either a disregard entity or your name that's got to be listed on it and that flows through to your personal return from there. The Ccorporation is the structure of Coca-Cola. It's literally just stock. It's you own shares in it. It's completely separate entity. It's not like you can go if you own shares in Coca-Cola, you can go to the bank account and take money out. You can't do you can't just cut yourself a check. You can't pay your car through there. It's a very rigid vehicle, but there are good uses depending on where you're at in your entrepreneurial career. and partnership is the last way that you um that I recommend kind of the LLC vehicle being formed as. And this is essentially a good way or what I like using this for is where you have multiple partners and you're not related. So you're not brother and sister, you're not, you know, family. It's not someone. It's a new, you know, you're partnering with maybe one of your employees. You're trying to give out chairs. It's a very flexible way of having your entity structured.
The escort we'll go into first. So, benefits of an escort. The nice part or really the reason why a lot of DOM's companies we have is the LLC escorp is it's a great way to avoid self-employment tax. What is self-employment tax? self-employment tax is what you would be charged on a partnership. So the example of escort for partnership. So if Dom and I are partners on an escort and we're also partners on a partnership. Let's say the business makes $100,000 and an S corporation. Dom and I all we have to do is take a fair market value of our salary. So for example, if I'm the one working the business, I'm going to take a salary. If Dom's not working the business, he's not going to take a salary. We pay payroll taxes which is 15.2% of whatever we pay. So if we were paying me the 100 grand, we would pay payroll taxes of $15,200. In a partnership, you cannot take a W2 salary. So if I'm the one taking if I'm the one working the business, I'm going to get paid the same $100,000 again, and it's going to be called a guaranteed payment. It's the same idea. It's my That's my salary. And when I go to file my personal return, I'm going to pay the same $15,200, which is self-employment tax, same as payroll tax. The difference is on the LLC partnership vehicle on the 100 grand, I'm going to get paid the 100 grand gross. And then on when I file my personal return, I'm going to pay $15,200 in self-employment tax before I start paying income taxes. So the self-employment tax just social security, Medicare, the normal payroll taxes. Um, the S corporation, you're only going to pay it on your on your W2 wage. on the LLC partnership, it's on all self-employment earnings up to the self-employment limitation, which is like probably it's probably probably like 180,000. It's going to be 200,000. Eventually, it'll be probably even a higher number. So, when you're the first 150,000 that you're making in an LLC partnership, it hurts a lot because you pay that same 15.2% 2% but on the escorp you could pay yourself a W2 salary and you only get charged on the W2 salary. So when you're starting an escort you're not going to come in and pay yourself hundreds of thousands of dollars. You're going to say hey I'm going to put myself on salary for 25 30 40 grand and then I'm only going to pay self-employment tax on that. And you're not even going to start that the first month. You're going to wait till you get profitable and then do it because it's not one of those things that's pleased. So on the LLC partnership it doesn't matter. It's just a straight flow through in the K1 and whatever the K1 earnings are, you're going to get charged self-employment tax on it. Now, when you're starting up a business, there you go back to the depreciation. Oh, okay. Well, I have depreciation to zero out my profits. So, LLC partnership, not a big deal because zero is zero and there's no I don't have to worry about paying 15.2% on zero. So those are really the like the basics from esport to partnership that I like to focus on when I'm kind of thinking about it. And we're starting to use a lot more LLC partnership. And what we're doing is instead of that $100,000 profit that we have on the partnership and then both of us paying 15.2% on 100 grand, we are paying management fees to lower that $100,000 to $20,000. And that's what Dom and all his partners are doing on all these entities where we make sure that these K1s are not showing self-employment earnings because self-employment earnings are not even income tax. So on that 100 grand you pay 15,000 and then you turn around and pay another 20% in income tax. So you're really paying 35% on that first $100,000 and you're only making $100,000. And if you were taking a $100,000 W2, you pay paying a lot less in taxes.
I know that was a lot. Is anyone Is anyone formed as an LLC partnership or escorp that isn't taking a salary maybe or they work the business and their partner doesn't they may have any questions on
>> quick question when you said management fees.
>> Yes, go for it.
>> Would you say like so like with Dom's partnership or whatever he's doing, are you throwing the management fees into the holding corp and basically lowering it as like an off your corp or what are you doing I guess with the management fees?
>> Yeah. So the management fee is what we're doing is so for example when Dom takes a management fee, one of the things that you don't like to put on a tax return is the the line item of the management fee. So when I'm thinking of Don's management fees across his companies, I'm saying that this is marketing and business development where he's going out and marketing his company and developing the company and I list it as such on the P&L, but it's essentially a management fee really just keep it simple and that we we are making sure so for example on where him and I are 50/50 owners and we want to share everything 50/50. If he's taking $25,000, I need to make sure I'm doing the same thing. And mine might be for, you know, consulting or something like that, might be a different line item, and we have to take the same amount in order to arrive at the same answer to us both personally. And he is picking up that $50,000 or $25,000 in his capital company. So when you look at Dom's videos and he's talking about his capital holding company, it's expense on the businesses that he's servicing and it's income on his capital company. Does that answer your question?
>> Yeah. So then that income on that capital company like you obviously have distributions everything this is in excess of the distributions and any any W2 that he or you would be taking, right? like this is basically a third a third piece of the pie that you're taking a management fee and putting that into you know his capital account or his capital company um to lower taxes in the other companies is I guess the question I have
>> correct
>> yeah and the 25,000 that we're putting there then I'm saying hey Dom all the traveling you're doing all the meetings that you have all that stuff is deductible but he's got partners so he doesn't want to put it on all these businesses and pollute how the value of them. You know, that's the point of why we're doing this. You when you talk to your partners day one, you want to be clear that don't put your travel through here. We'll all take management fees once we get profitable and you'll put it all through your separate hold.
>> Yeah. And to jump on this too, guys, like one thing that's really important here is fully in agreeance like partnerships are very valuable and if you know you can segregate your own comp money out of those, it's it's obviously super important. But the other piece of this that's even more important is when you're gonna the the if you do choose to use your bills to write stuff off out of like that, what's going to happen is you're gonna have to do a quality of earnings report towards the end of when you're going to go to sell. And that QV is going to basically try to back out all of those expenses, right? Whether it be travel or this or that or whatever. And what mostly happens 90% of the time is you come up with an adjusted IBIDA that's very much favoring favoring yourself, but it's also very true. The problem is is the buyer is going to fight that adjusted IBIDA as much as they can. So even though you may have an adjusted IBIDA that goes from let's say 18% to 22%, you're most likely going to land somewhere in the middle of probably 20, right? Because they want to split the baby. And that could be a lot of money when you're dealing with a 20 times multiple on your company. So, don't [ __ ] your business over being stupid and doing this. I've seen it happen so many times to my friends who have sold businesses. One of them lost hundreds of millions of dollars on his exit because he was putting all of his partying and all of his pool parties and all of his stupid [ __ ] through the business the whole time he had it. And he couldn't convince them that that wasn't a marketing strategy for his brand. So, at when the time came where he was trying to argue that, they said, "Well, tough [ __ ] if he would have just pulled the money out, put it in his distribution account, and then done it from there, he would have gotten all that money. Does that make sense? So, like, you guys got to pay attention to it. So, this is just really another lever of protection again from for your partners and yourself to make sure everyone's held accountable, but at the same time for you as well when you're going to sell that there's no muddy water inside your P&Ls ever.
>> What sort of time frame are you doing with uh your quality of earnings? So, like, how far back does that go?
>> Uh, I mean, usually you're only looking at like a trailing 12 on an exit. So, you would only adjust do a QV on the trailing 12 of your company because before that, no one gives a [ __ ]. So, I would say, you know, I would want audited financials for two years and I would want a QV for the year the trailing 12 of the acquisition year.
>> Yeah. And you want to have all of that ready in a very close time period because what we didn't, you know, didn't see and didn't do right that we could have done better is you finish the audit, you send the audit, you're like, great, we finished that, but then all of a sudden there there's a hundred request list of documentation that they need and then you've sent the quality of earnings and then you have to update it probably 15 times if you don't have everything ready. So like your audit and quality of earnings, you really want them to be ready like at the same time. So for example, we're doing our audit right now for 25 and then you would pivot to then doing your quality of earnings. And from a quality of earnings standpoint, you want that to be that's basically what they're going to base their LOI off of. You know, it's going to be like, hey, this is what I think the company's earning and I'm willing to pay this amount if it's earning that. and you're going to pay probably 125 to 150 grand if you do it once. If you have to do it multiple times, it really increases, I think, you know, over $200,000 that you're going to pay. If you're having them updated each month in the report. So, if you can really get them a lot and put the ball in their court and say like, "Yep, this is everything. What would you offer us based on this?" You'll avoid the back and forth of months of doing, "Hey, is this up? am I um you know is it ready for next month when will you have you know for example it's April 15th when will you have March ready you know like that's basically what they would start to do and then your team will be bogged down every month updating this report going through all these expenses you know which Amazon is the business versus which Amazon's your personal like if you're just doing management fee I would error on the side of doing management fee on as much as you possibly can and put that stuff in your management company just even if there's like maybe potential business use if it's just your company error on the side of putting it in your capital
>> Greg quick question about that you you
>> um you said don't call it a management fee though when you're in the P&L right
>> yeah so the IRS they're they know what's going on you know they they they they have an idea of like what what people are doing. So everyone used to so benefits is a good example. So they created these rules um where there's common ownership. So when you have common ownership amongst two entities the one thing you can't do on your management company we'll call it which I'll go into what we're going to call your everyone's after this. You can't offer benefits. You can't have 401k, health insurance, all those like sexy things and have them in your hold co and not offer them to employees. So when you have common ownership benefits wise, whatever you offer in your if you want to offer it to yourself, you're better off just doing it through the company and offering it to everyone. You can't do it in one verse the other if they have the same ownership structure to be the owner of both. But management companies no good because that's what basically was happening. Everyone was taking 401ks. They were they were putting SEPs together. you were they were putting hundreds of thousands of dollars away for retirement and sharing none of it with the employees. And that's really where the stigma of management companies came about. So, what I've been doing for the last probably 10 years, I got taught this in a tax structure um where you can really pay no taxes, but you have to be willing to put the money away till retirement, which is how all legal tax structures work, where if you don't uh want to pay taxes, you literally can't touch the money, which I can show anyone how to do that, but with the how aggressive all entrepreneurs grow, it's usually very difficult um to do. So anyway, management company, you can call it like logistics, you can call it what's your what's your business type that you uh you operate?
>> It's HVAC. So home service business.
>> Okay, perfect. So you could be doing consulting, you could be doing um see HVAC. I mean, you probably could even be doing like repairs and maintenance for um for your company essentially. It depends. And you would want to separate them into different lines because you don't want to have one line. It's just like $1 million consulting. It shouldn't be a round number. Transfer a slightly odd number. But what's important is that you make sure that your CPA takes that $1 million as a deduction on the business and income on your old co old co or capital co and then you're going to say these are the types of services and really you're going to work with a CPA. Hey, what do you what do you feel comfortable listing here? You know, we you can put some management fee like a like you're going to want to put a little bit of everything in order to kind of diversify it. Thank you,
>> Greg. Quick question.
>> Yeah. Um I'm in the middle of uh I did a 1031 1031 agents got our money. We're buying another STR property, short-term rental. Um but we basically had to re we had to uh oh, I don't know the term. Like basically we let an LLC die. We had because we weren't using it. And then we had to reinstate reinstate it. Um
>> yeah,
>> we had to reinstate that and we're now using that to purchase this this home um with my wife and I. Should we obviously I'm assuming that the partnership's probably not a good idea here. Um escorp I don't know that it's going to have enough money that we're going to be really taking a payroll salary on it. Because it's I mean, it's kind of a second home, too, but we're going to short-term rental it. What's the best structure for us to uh for that one? Because it's specifically its own entity.
>> Yeah. So LLC partnership is going to be and it's going to be a short-term rental you said.
>> Yeah.
>> Yeah. So, well the first question I have is on the LLC that died, who were the partners before you re instated it? Do you have did you have other partners?
>> No, it's always been my wife and I.
>> Okay, perfect. So you just don't want to reuse LLC's. They're relatively inexpensive to make, so you can always start a new one. But the reinstatement is no big deal. It's usually just a fee and they bring you back.
>> Yeah.
>> Um, yeah. So, I like to do so for Dom's companies, the way I do it is I have real estate holding company and then I put each property in a separate LLC that rolls up to the holding company. So, if you're getting started and this is kind of your first one, no big deal. you just it could just be um on your personal return under the LLC where you guys own it and then you don't have to do a separate entity or a separate return for it. And if it started to show income then you could take payroll or you could take management fee. Um, but if you're keeping your if you think the income it's really most properties are not going to from a tax standpoint show a ton of of income, but some of the short-term rentals like some of Dom's properties do.
>> Greg, couldn't you also just leverage this as a massive loss and write off a ton of [ __ ] stuff on this property and use it at like that on your taxes? Like we, you know, I think that's a a better strategy.
>> Yeah. So, what other income do you have?
>> Uh I mean, I've got multiple streams, but I mean this one's not like for me it's going to be like I don't know, we we'll probably make like 50 grand a year. Like,
>> dude, I would I would write off every [ __ ] piece of construction, everything you possibly can on that piece of property. And I'm talking like construction for everything you do and just make it a massive loss like a to generate massive losses for you on your tax return.
>> Okay? So like if I'm going to put a new roof on my house,
>> put a new roof on your sister's house. [ __ ] there you go. Put it there.
>> Okay?
>> Those are all types of good expenses, right? Think about a real estate. Like who's going to say it wasn't there? You know, like those are all the best types of expenses. So when you're in that industry, leverage the type of business that you're in. And like the other thing that I'll do is like I have, you know, we have our own GC company. So even when I'm doing work on my own house, I'm doing it at full price. Like the invoices are full price. I mean, I'm not paying that invoice most of the time. And I hope the IRS isn't on this call, but like that's kind of the way we move and it works, right? Like they can't say you didn't. Like it's it's very valid that a roof is this. You can test it in the market, see if it's fair market value, and it is what it is. So yeah, like even like sometimes when we're doing work on properties like dude, my goal is to show losses on those properties.
>> Right. Right.
>> Okay. No, that that makes sense. That's helpful. And and this would just maintain a regular LLC status. I wouldn't change it to an S corp or CC corp or partnership or
>> I don't know that answer, Greg. You know that answer?
>> Yeah. So the LLC the if it's you and your wife, it's it'd be considered a partnership. I would,
>> which is is the way to do it. It's simple. You don't have to do anything. You don't want to be an escort. It's a little more rigid and you don't need to do that. There's no reason to do it. So, it's a multi-member LLC, which is taxed as a partnership.
>> So, that's that's the scal here.
>> Okay, perfect. No, that's helpful. I'll uh start right now.
>> Yeah. to Dom's point um like you the benefit of doing short-term rental for everyone here is you you got to do a cost segregation study whether or not you want to do it the first year just absolutely do it otherwise it's better to just keep it long term and just let it run losses like the short term it offsets your active income so all your other streams of business are going to be offset
>> I think a cost segregation study is like and and that that philosophy is like For example, if you're going through like an acquisition, right, and you need to put massive amounts of money into massive pieces of property to offset, you know, taxes, that's when you're going to go out and do that cost segregation and go buy, you know, a $10 million or $3 million commercial property. But, you know, real estate is meant to hold and take losses on while the property is appreciating over time. Like, that's what people don't understand about real estate that that's the most beautiful part of real estate. You know, it's it's you can turn a return of 10% into 20% if you do it properly and you're writing off the losses the proper way as well as gaining all the appreciation on an annualized basis from the actual property itself appreciating. Another thing you absolutely should be putting on that property, you should definitely have a car as well. You're going to be real estate professional. You're going to be driving around. You're going to be going back and forth. So, make sure you have you don't want to put 10 cars in the company. You put one or two on all your LLC's that are kind of active trader businesses and that's just a small benefit that you get as a business owner.
>> Awesome. Hey Greg, at the Lunetti event you were you were talking about um with the LLC making sure somebody has 1% or like I don't have.
>> Yeah. Yeah. Yeah. Absolutely.
>> Yes. So,
>> yeah, just for that's for uh that's for protection, you know, like if you're going to get sued um you know, if you you can it's almost similar to you getting sued personally if there's not anyone else on the LLC, but once you put someone else on the LLC, they can't take the company because, you know, it's it's a partnership at that point.
>> Okay, that's what I thought. I was just making sure.
>> Thank you.
>> Yeah. And it avoids you being
>> I have a question.
>> Go ahead.
>> Never mind. All right, keep keep going. I just had a question.
>> No, go. You go.
>> Um, so can cost segregation study be done on long-term rentals? Because I own properties, but they're all long-term rentals.
>> Yes, you can. The benefit's not as great. Okay.
>> Because you're I mean, you're still going to be able to accelerate that depreciation and it would be deemed passive. So, if you had other sources of passive income or if you were going to sell a property at one point in time, you could generate losses, but it's not like you're going to see it in the first year. The benefit of it, you'd see it, you know, when you eventually have an exit sort of pass.
>> Understood. And the um so the LLC partnership that Dom's referencing, the most highly audited schedule is schedule C. So schedule C is a schedule that's on your personal return. It is the one place where everyone kind of puts their junk and that's where if you're going to get flagged personally, it's going to be because you did something on schedule C, which is what single member LLC's file on. So if you're a single member, it's just you 100% owning the LLC. It files on schedule C. the worst schedule to be on. You are a big fish in a small pond. You want to be on LLC partnership, LLC escorp. Those are you're going to be the smallest fish in an enormous pond.
>> Yeah. Those are the guys that are getting popped for like [ __ ] three $400 million tax evasion. So, if you're scooping by with a million, they're not even going to [ __ ] pay attention to you.
>> Can I ask a question about that 1% rule we were talking about? Are you saying
>> Yeah. So, if we're 50/50 right now, we're married, you're saying we should have one other person who at least has 1%
>> to protect in case somebody tries to sue us, go after the company. Am I understanding that right?
>> You could just use YouTube.
>> Yeah.
>> Yeah.
>> You're kind of protected the way you have it, too.
>> You know, if you want to be very secure, you can add. I think I think your wife is fine, though, right, Greg? Because I have Sammy on I'm
>> Yeah. Yeah. And to be honest, so like the married, this is a great topic. So like typically when you're married, you're you have a business 50/50, right? It's actually not the best way you want to do it. You really want to do the 991 because you want to really uh from a self-employment tax standpoint, if you make 100 grand, you're well, let's see this. If you're making 200 grand and it's 5050, you're both getting taxed at that 15.2%. If all the profits allocated to one of you, then you're maxing out that social security cap quicker and then the other you're paying zero on one and then you cap it out. And then after the social security cap, which I think is $200,000, then you pay no social no self-employment tax and you're going to save money. So like if the business is making a million dollars and you have it all allocated to one of you, then you're really maximizing. You're in a good spot. It's that growth stage that's painful in the beginning where you really, you know, when you're not making over a couple hundred grand and you're both own 50% of it, you're getting absolutely smoked on taxes.
>> Even if we pass it through an escorp,
>> uh, no. So on the escort, no. So that does avoid it. And
>> all of our LLC's are linked to the
>> We have the escorp and then we have all the umbrella LLC's underneath it essentially. Exactly. And that's how I have Dom. So that's perfect.
>> So that first cash. Let's see here. Okay. Uh so depending on what you're going to how you're going to finance the property could or the business can limit how you're able to take losses. So, if you're going to fund everything personally, whether you're LLC partnership or LLC escorp, no difference, no problems. Everything's the same. You get the same tax benefits. Um, it only comes into a problem when you're going to take out debt. So, from an escorp, if you put in $100,000 into an escort and you buy an asset
That's $100,000, you're able to write off that asset as an escort. If you personally put in the hundred grand, if you put in $100,000 of a loan that you personally guarantee, even if you personally guarantee it, you are not allowed to take that $100,000 loss because it's not your own money. So that loss carries forward until you have income.
So, when you're picking the type of structure, just think about if you're going to have debt or not, and then you're going to come ask me and we're going to figure out which one you should go with. Uh because there's a different scenario for each. But from a debt standpoint, you want to make sure that you know how you're going to fund it. And if you intend to use a loan, it might be better to do LLC partnership and then eventually switch to LLC escort, which you can do. You can go from LLC partnership to LLC escort, but you cannot go from LLC escort to LLC partnership. That's a taxable event. So, you can always start LLC partnership. You can say, "Ah, I got hit with self-employment tax this year." And then you could say, "Great, I'm changing to LLC esport." No taxable event, no self-employment tax. You get all the benefits and you're fine.
Um, the only thing that could come into play is this whole debt scenario where if you take out debt, you may not be entitled to the losses for some time until you have enough basis in the entity, which bases all know the structure. Well, I'm actually going to make diagrams when we talk about that.
Cash versus accrual. CPG companies, and really anything that has inventory is a great um cash versus accrual is a great structure in the beginning. Um, from a CPG standpoint, you want to be cash. Now, you're going to keep your books in the accrual basis. So, this isn't going to walk back anything that we're talking about. Accrual based P&Ls always, always, always. And that's it. You can't report any other way. You can't do CM1, CM2, CM3, any other way. But when you go to file taxes, what happens from a cash standpoint is if you have accounts receivable and you had a million dollars of accounts receivable where it's customers supposed to pay me, you don't have to pick up that income until you actually receive it. So, it's a huge benefit in those types of businesses where your accounts receivable allow you to avoid paying tax until you actually get the money.
Accrual basis you really get pinched on because you could have that million dollars you fulfilled it, you shipped it, if the customer has it, you're just waiting for payment, you're going to owe tax on that in April. So early on in your CPG company, you have to be cash, no other way to be structured. Eventually, you're going to grow too big and right now the limit is $32 million in topline revenue, then they require that you be accrual because the IRS says we're not playing this game of when you get your money, we get ours. We want ours now and you're required to once you're making it, when your top line is $32 million.
Um, yeah, so that's the cash basis CPG um specific or really anything has inventory. So, if your business has inventory, if you have cars, if you have uh ATVs, anything that you have inventory on, you can absolutely write that off and um you don't have to pick up income unless you actually receive it.
Here's a little playbook that um I put together. It's just like four good topics to bring up. And again, you don't have to wait till year-end to do this tax planning, and you absolutely shouldn't. Your accountant's going to be most available during the summer months. You know, they just finished the deadline, so they're probably going to be a little tied up for like two weeks, but then from May to August is when they're the most available. It's when you should do all your tax planning. Figure out all the stuff that you're going to do. Are you going to expand the business? Are there any improvements that you should be making before year-end? And then you already know what you're doing. I'm gonna buy a truck this year. I need a car, so I'm going to make sure I find one before the end of the year. It's going to be over 6,000 pounds, so I can write off the whole thing. Um, and then you guys are aligned. And then from there, you don't even need to talk to him during tax season. It should just be like, we're a well-oiled machine by 12/31. And then when it's tax season, I know that he's going to do all these things. You're going to come back with the list. Hey, do these four things? Yes. No. And that's the best thing, the best structure you can have with your the individual filing your taxes.
Yeah, I would argue that like in this instance, you're getting the C team if you're doing your taxes, you know, a month before they're due. And these dudes are burnt out. They're cooked. They're making mistakes. You know, you know how big I am on planning. You guys, if you were here for the SGM, you're planning a year in advance. I mean, the the things that Greg and I put in place four years ago are are coming to fruition now. So, you know, you need to first of all have a vision of where you want to see your company and your brand because obviously if you're planning for something to happen and it doesn't, there's no point in planning. But once you do hit those goals, you know, you're very much ahead of the game and ahead of the curve. So, we are saving I would I would argue millions of dollars a year at this point by what I'm doing. And, you know, I don't feel I hate paying taxes, right? Like, it is one of them the worst feelings in the world when you're cutting a check to go to god knows [ __ ] where, you know, today. Uh, just it it hurts my soul to do it, but knowing that it could have been worse, it makes it a little easier.
>> I just highlighted two tax rules. I'm going to probably start to kind of just give two couple tips and tricks each month of things that I've seen. So, the Augusta rule, it was just the Masters this past weekend and they came up with this tax rule, which is really cool. It's kind of going to nerd out here from an accounting standpoint. So what happened was the IRS has allowed individuals to rent out their home for 14 days or fewer for the fair market value of what that would be and pay no income taxes on it. So what does that mean for you guys as business owners? Do you have a companywide event? Do you have a holiday party? Is there something during the year where you can be renting out your house? Uh, having your C team over for dinner. This is a great way to be able to take a deduction on your business where they're paying rent, travel, all those things to from your business to yourself personally, taking a tax deduction and then picking up none of it in income. And it was derived from the tournament, the golf tournament, where all these owners of homes were renting their houses and they needed more houses. So they literally um said, "Hey, here's a great here's a great tax incentive to do so." And they fought for it and now it's its own rule. It's called the Augusta rule.
All right. One big beautiful bill act for 2025. So if we haven't filed your returns, 100% bonus depreciation is reinstated. This actually was phasing out. So, it used to be 80%, then it was 50%, then it went down to basically 20%. Which is pretty much normal depreciation. It's back though, and for property acquired after January 19th of 2025, everything in '25 that you bought, you can absolutely write off and generate losses and pay the least amount in tax. And you know, kind of what Dom and I have been doing is we take every tax option available in every year and maximize it to its fullest extent because you never know when it's going to be gone because it absolutely can be gone, whatever bill can change and it literally says oh next year it's gone and then you're like, we had all this planning. So, it's like whenever you can take a tax option, I would highly recommend taking it. And in 15 years, the guys who always took the tax options when they were available to the fullest extent paid the least amount in taxes. If you're trying to plan long-term, it just doesn't really work because you don't know what's going to change.
So, here's some. Yeah, go ahead. >> I apologize. Uh, on the and I hope you can hear me. Okay, I'm in the car. Um, on the on the accounts receivable uh subject of um like I'm an e-commerce. I sell jewelry online. I'm always paid like in just the Shopify uh payouts um setting like just one business day after. But I was just thinking I'm like maybe for December if I want to kind of push my taxes and if I don't need the cash, I could just set it to pay or for the payout to come let's say 30 days after so that it comes in the following year. Uh, is a like late payout on Shopify considered, could I like classify that as an account receivable and then minimize my taxes or have my taxes be a little bit less or my income be a little bit less for that prior year by just pushing out a payout?
>> No, it's not going to work. So, it's going to be based on when you get paid. So, if you delay it, so like if you're fulfilling the order too, it's going to cause you're going to have a hard time with that. I wouldn't mess around with that.
>> Okay. Okay. I'm sad. Thank you.
>> What you could do is a couple days there. You definitely take a small win on that. You take like three or four days. Hey, Greg. Um, real quick on the Augusta rule. Um, fair market value. Now, I'm sure you know people could probably chuckle at this one, but how how do you calculate fair market value because, um, you know, our our Scott
>> Airbnb and see if you can find somewhere local and find some comps.
>> but ultimately you're going to error on the side of a higher number.
>> Yeah.
>> Okay. So, so it's like current comp. It's not like what's. So, like what we were using is like uh
>> uh back back in I forget what year it was, but when Super Bowl was hosted in Phoenix, uh at the time our property was used as an Airbnb and so I think we got like three like three grand a night for like a week straight. We probably can't use that figure, right?
>> Yeah. I mean, market's definitely gone up in terms of like you could pick the average and then add in. Um, and that's something that I actually would use Claude to kind of model out a little bit and see where it ends up. Round up and then that's good enough. I mean, you're not saving, it's not like this groundbreaking change to your taxes. Literally, it's going to save, you know, a few thousand dollars, which every little bit helps. And you want to do all these little things that are available to you because they are available to you and that's how you get to the lower tax brackets. And it's just something that should be an automatic each year. So, I would definitely put in I would ask Claude and see what they had to be honest, but I don't think I would use the 3000, but I bet you it's probably now um I don't know how many years ago that was, but it's definitely getting closer to that.
>> Cool. Thank you. And just to just to kind of piggy just to piggyback on that a little bit in Atlanta, like if we have a huge sporting event that comes around, typically Airbnb prices do go up around that time if we happen to rent it out quote unquote for that week of the event or could we put could that be something that could be possible?
>> Yeah, that's that's absolutely supportable. So, all you're going to do is like two or three listings or, hey, make me uh make me some comps of my house. This is the specs of my house, the square footage. Get me some comps this same week. Save that in your file and you're good to go. From an audit perspective, when you guys are thinking about like businesses and saving stuff, the way it works if you ever were audited is you don't want to spend all your time preparing for the audit because it's a lot of waste of time and it's an unlikely, knock on wood, an unlikely event. So, what you do want to do is on the stuff that you're going to be a little bit more aggressive on, save that stuff somewhere so that way you are ready. But like in terms of thousands of receipts and stuff, you're going to have to like if you get audited, then you're going to have to kind of go around and get some receipts. Reach out to your vendors, say, "Hey, can you send me the receipts for these these years?" Save forward them all to an email that's just like, you know, receipts ghgmail.com. And just forward everything there. And then if you have to search for it one day, you'll come and you'll find it at that point. So, from a supporting standpoint, that would be something that like if I want to get more aggressive on it, I'm going to do it during one of those sporting event weeks. I'm absolutely going to do it and get a bunch of comps and pick the highest number around them and just worst case scenario, they say no and you just owe the tax. It's, you know, that's that's it. And you're all talking about it's going to be a couple thousand dollars at best.
>> These are these are adbacks, too, correct Greg? Like if I if we do that at sale and I rent my own house, that's an adback that's justifiable that they're not going to have issues with it.
>> Yeah. And this would be something that I'd probably be doing on your capital. So like your capital code planned and hosted the holiday party and that was just part of that's one of the duties that your your consulting company or your marketing and business development or your you know human resource company does. We're running close on time. I actually don't have
>> rule that you said that
>> I actually don't have
>> Go ahead, say that again.
>> What was the other rule that you mentioned that's back at 100 that's back at 100% this year for taxes?
>> So bonus depreciation that is against physical assets that you're that you've invested in. So things that you can actually touch, you can take 100% of them in most cases. And what that means is like for example, if I bought a I bought a desk or I bought a lot of desks, I spent $50,000 on desks, I can now write off that $50,000 in the year I purchased it. Previously, you could you would either take section 179, which you could take 50,000 only if you had income of 50,000, or I'd have to take it over a five-year period, which is not ideal. But in the last five or six years of working with Dom, we always find a way to get through almost all the asset values every single time you can find a way.
Uh, Greg, uh, Alex here. Do you mind sending me over the recommendations for the CPAs or the firm to work with? Our CPA for this year for all the packing lines that we purchased had advises that we could only take 75%. So, hearing this now, I'm not happy.
>> Yeah. Did you get Oh, is that what your effective tax rate is right now?
>> on the depreciation on the packing line? We ordered three packing lines that we put the service in December and he's we were trying to take some losses for 2025 and he told us that it's 75% and the rest we'd have to spread it out. If we would have taken 100% that would have been ideal.
>> Yikes.
>> Yeah. So, if you can uh send when you get a chance send me over the the offices I'll send you the I know we talked at the event about that. Yeah. Yeah, thank you. That's all I prepared, guys.
So, tax planning works its best when structure, operations, and documentation is all on point and in the same direction. So, it just comes down to find a CPA that wants to work with you that's not sitting there watching the clock that um yeah, if if there's anything that maybe like your engagements that your CPA is charging you that you can figure out how much they are charging you. I'd be happy to tell you if you're getting a good deal, if you're not getting a good good deal, and give you some recommendations. But if they know your business and you're getting financials regularly, then that's a pretty good CPA that you can be working with because most CPAs, if they're not, you're not getting monthly financials. So, if you aren't, then you're probably in the majority. But if you are, then you're in the minority and definitely someone that whether the pricing's off or you've got to have a conversation, now's, you know, the next couple months are going to be a good time to have those. And if they're willing to meet with you for tax planning, you know, that's a that's someone I would recommend to anyone.
Also, I know there's going to be a ton of follow-up questions from this call, just like stuff you forget or you don't remember or you need templates for or maybe like a cheat sheet for the year of, you know, what what equals what, what can you depreciate, how. So, if you guys want to drop all those questions because these are these are massively loaded topics, but I would also tell you that these are probably some of the most beneficial things you can do even towards the end of the year, right? Like if you have a massive profitability at the end of the year and being able to purchase, like for example, Kev, if you need to purchase a [ __ ] ton of HVAC units at the end of the year to build up inventory to be able to have a lot, you see what I'm saying? Like there's a lot of things you can do that are very very strategic to to make things make better sense for you. So, I think what would be good is like ask those questions and then maybe we can build out like an FAQ cheat sheet that we can dump in here. Um, and you guys can kind of revert back to that all the time and look at it and I'll do the same because I always have questions that I just asked Greg. So, I'm going to actually just start asking in here as well. That way maybe you guys have the same questions that I have and you know we can all just consistently get better by doing so.
Oh, also um I believe I forget who it was. I think it was Acram at the last event uh was talking about how his other group that he's in has like a like a sheet of like a headshot contact information and what you're great at. So, if you guys don't mind this month, what we're going to do is we're going to jump on and just ask for those things, right? Like your headshot, contact information, and what you do and you know what you think your like super skill is. And I would love for us to kind of all participate in that. That way if we need something, if we can rely on someone's company in the group, I think it'd be super cool to, you know, to do that and just have that availability. So, you'll see that will be a new tab on the Discord coming soon and everything will be dumped into that.
All right, guys. Have a good week. I appreciate all of you.