Transcription
I got a letter in the mail from the IRS telling me that I owed them more money than I had. At that point in time, I had to humble myself. Finally picked up the phone and called my mom. My mom had owned a tax and accounting firm and I asked her what I did wrong and she told me, "You could have done this, this, this, and that."
>> What's the net worth of the average client?
>> Tax planning makes sense, right over 300K. That's when you have enough liquidity to be able to invest in tax reduction strategies.
>> What do you see that people get audited the most for?
>> I have seen some of the craziest things on some of these other expense items. massages for my team.
>> People see corporations pay 0% tax and they're like, how?
>> You're shifting income from one entity to another entity that's filing tax returns on a completely different fiscal year end.
>> Who benefits the most from the tax code and why?
>> The government has created a bunch of incentives inside of the tax code because they know that they can't afford to provide affordable housing for everybody. They know that they can't get everyone a job and stimulus checks. So, they're partnering with business owners. You can be an earner in this government, but they're going to penalize you for just being an earner. Debt is a good thing. It's a tool. It's something that I can use to my advantage. I understand that there are certain wealth teachers that teach you to be 100% debt-free. However, the tax code is not written like that. IRC 181 allows for you to write off the cost of the production of a movie film. These taxpayers have to spend 100 hours watching other movie films in order to qualify as an active participant in the movie space.
>> All right, guys. Welcome back. E. We are here with a special guest, Carlton Dennis.
>> Yeah.
>> Um came from California.
>> And um specializes in tax strategies for high-end wealthy clients.
>> Yeah.
>> Is that correct?
>> Yes, that's correct.
>> Okay. So, this is a conversation that we can never, you know, have enough of. Um, especially around this time, it's tax time. Yeah.
>> And, um, I feel like no matter how much we talk about the tax code, most people don't have any idea about it and people still make mistakes. We just talked about some entertainers that made some big mistakes when it comes to taxes. So, learning about the tax code, learning about best ways to um, you know, really shelter, really maximize deductions, really, you know, make the most out of the the code cuz it's very complex. I think it's something that is always educational to teach people on. So, you know, this episode we're going to go over that. We're going to go over your journey and just get a lot of gems. But, first and foremost, thank you for joining us. Appreciate it.
>> Absolutely. I appreciate you guys having me on. Excited to talk tax today. I want to be able to help a lot of people kind of crack the code today, if you will.
>> Yeah. I think it's going to be an interesting conversation. One that obviously the audience is going to learn from, but we going to learn from, too.
>> Cuz one thing about the tax code, especially when new administrations come in, it always changes.
>> Yes.
>> Right. Things get taken out, things get added, some things get put back. Um, so I I got I got a bunch of stuff.
>> Yeah.
>> Yeah. Cuz you know, we're trying to make sure that that we can keep it as much as possible.
>> Without a doubt. Without a doubt. I love that. I love that.
>> So, let's get into it. Um, how did you even get to this point? Let's let's start there. How did you get into the world of taxes? Um, how did you start working with clients? Like, explain your whole background from start to where you are now.
>> Yeah. So, I actually don't have the traditional background that most CPAs or tax professionals have. I didn't go to school for accounting. I went to school for kinesiology. I thought I was going to go to the NFL. That whole story didn't end up happening. And right when I graduated college, I got a W2 job working for this company called Galla Wine Company where I was selling like wine and liquor. And um I also started my personal training business. I did not realize that when you are a 1099 contractor that you have to report all your 1099 income. And if you don't, the IRS will report it for you. And so I got a letter in the mail from the IRS telling me that I owed them more money than I had. And uh at that point in time, I had to humble myself. Finally picked up the phone, called my mom. My mom had owned a tax and accounting firm for over 30 years. She was literally called America's tax lady. And I asked her what I did wrong and she told me, "You could have done this, this, this, and that to have prevented it." I moved out of Hollywood, California, moved back home with the parents, joined the family business, and within 6 months, I realized making personal training programs was never going to equate to the revenue she was receiving on selling tax plans and helping people save money. and I decided to go all in on tax and got my enrolled agents license and got on YouTube during COVID and uh to 2020 and started sharing tax information uh with the world.
>> So your family is a you have a has a firm?
>> Yeah, my family has a firm. Okay.
>> that's correct. Yeah.
>> You still work with them now?
>> Oh yeah, absolutely. Yeah, my mom has her firm and then I have my firm too.
>> That's correct. You know, most times we hear stories and people try not to stay in the family business.
>> Yeah.
>> What you said you had to humble yourself. Yes.
>> Right. like growing up obviously knowing that your parents did that line of work. Were you like saying like I'm going to do something completely different. I don't want to do that. That was it was like just being stubborn about it.
>> Yeah, 100%. I was super stubborn. I wanted to be the football guy, the limelight guy. Athletics was always the thing that came easy to me. And when I saw the writing on the wall that I wasn't going to go to the NFL, I needed to pivot into something else. So, I immediately went to CareerFare, found the first job that that liked me, which was, you know, Galla Wine Company. fell into that. But then I picked up personal training right at the exact same time and I called myself a celebrity fitness trainer. Moved to Hollywood, California and started getting clients just by posting on Instagram and social media. At that time, not too many people were really using Instagram like that um for videos yet. And so I was like putting out a bunch of videos to get people attracted to my business.
>> So at what point do you like hit your stride and say I'm all in on this taxes thing. I'm I'm I'm done with, you know, trying to be a personal trainer.
>> Yeah. at at this is this is my my chosen path.
>> So yeah, it happened actually within the first month of working in my mother's firm. So I convinced my mom, I'm going to go 100% commission based. So I don't want a salary. I'll just come in on sales and I'll be 100% commission based. Well, the first four weeks I didn't make any money cuz I didn't understand anything about taxes. I was just calling people and didn't know what to say. She came into my office one day and said, "Hey, if you can't sell a tax plan within the next four weeks, I am going to fire you. You have plenty you have plenty of information here. So get get to work." So, what I did that day is I went to Target and I bought a recorder and I slid this this black record was $18 underneath her desk and for eight hours it recorded everything. I took that recording, sent it off to rev.com. Rev.com sent me back a transcript within 48 hours. Now, I had a transcript of how my mother communicated tax.
>> Did she know this?
>> She knew this.
>> Okay. Okay. Okay.
>> Now, when I got the transcript, the first couple of calls that she has was just regular taxpayers are looking for tax returns. very simple conversations, $1,000 return here, $1,000 return there. But then in the middle of the calls is when she got to the tax planning. She had a husband and wife come in. They're a real estate agent and a a firefighter. And instead of looking for tax preparation services, they were looking for ways to reduce their tax. They were making about half a million dollars a year. And my mom elaborately explained in in the uh writing how a tax plan works, how you can leverage the tax code to the fullest extent versus just filing a tax return. By the way, the fee is $25,000. And on the spot, they signed. The conversation was only 25 minutes. I had been writing workout programs for $250 for a month, trying to get up to a hundred clients. She made $25,000 in 30 minutes. That showed me everything that I needed to know when it when it came to providing value to people.
>> So, the $25,000 was when you say a tax plan, just for the audience. Yeah. This this is not just like a regular like you do somebody taxes like you're putting together a strategic plan for wealthy people to kind of guide them on the dos and don'ts what they should do like explain what the tax plan actually is.
>> Yeah. So a tax plan works like this. Someone is going to take your income for the year project out your income for the full 12 months and figure out what your expenses are so they know what your net profit is. That is going to allow for us to be able to know how much taxes are you going to pay federally on the state side even social security and Medicare. But that's going to be the number we want to change. The next thing to do is to figure out what your goals are. Maybe you want to become a real estate investor. Maybe you want to own assets. Maybe you want to focus on retirement. So you spend some time with the customer to kind of understand what their goals are and then you match it up with the strategies that exist in the tax code. This is where the fun starts to happen because some people are going into investments for the first time. Some people are setting up entities or shifting income to um children for the very first time. And now they're able to reduce their tax bill before the end of the year, giving them far less stress when they go to file their tax returns with their CPA come April of the following year.
>> And what's the net like what's the net worth of the average client?
>> I would say tax planning makes sense right over 300K because that's when you're at the point where you have enough liquidity a year.
>> 300K a year in income. That's when you have enough liquidity to be able to invest in tax reduction strategies. Most strategies that are actually going to save you a lot of money do require you to invest money and that's the secret that the wealthy have been utilizing for years when it comes to the tax code.
>> and in terms of pricing cuz I know somebody's going to hear that and say oh my gosh 25,000 bas that's based on obviously 30 years of work but is that also a strategy right cuz that could that be written off in in terms of tax expenses like actually having having somebody that builds a plan like sometimes if you hire an instructor like that can be a part of your plan is that the the pricing is is incorporated into the strategy as well.
>> Yeah, it is cuz legal and professional services are 100% tax deductible. So you hiring a tax professional is a tax write off for you. So before they even done anything at a 37% marginal tax bracket, you might have already saved $5,000 for example.
>> See that once I heard the price I'm like, "Oh no, they wrote that off."
>> Yeah. Oh, 100%. You're going to place that underneath the business as a tax deduction. Yeah, absolutely.
>> So let's get into this. Let's get into taxes. So all right, so the world of taxes. Um, I always say like, you know, the tax code wasn't meant for employees. It was meant for investors and entrepreneurs.
>> Correct.
>> Right. Um, because that's the people that benefit the most.
>> Yes.
>> Right. So, kind of explain it from your vantage point. Who benefits the most from the tax code and why?
>> Yeah. Business owners and investors benefit from the tax code most because they're doing what the government can't do the most. The government has created a bunch of incentives inside of the tax code because they know that they can't afford to provide affordable housing for everybody. They know that they can't get everyone a job and stimulus checks. So, they're partnering with business owners and allowing business owners to take ordinary necessary expenses because they know business owners are going to grow and eventually hire employees and be able to get jobs. And that's what we want in this in this society. We want people to have jobs. We also want energy as well. and investors invest in energy, oil and gas, solar, and most importantly, affordable housing. If you're a rental real estate investor, you're probably taking on a loan, but instead of you paying that loan, you've arbitrageed the debt, and you had someone else pay down the loan, aka your tenant. So, you're partnering with the banks in order to buy an asset to provide affordable housing. That is why the tax code is incentivized for real estate investors and business owners.
>> Perfectly put. We talked to a pe a lot of people that invest for the first time. Uh a lot of people have made money inside the stock market over the past three years. One of the things that they don't realize is there's a capital gains tax.
>> Yes.
>> Can can you break down capital gains to the average investor, the beginning investor so they can understand it and prepare themselves, right? A lot of people like, "Hey, I made a lot of money."
>> Yes.
>> End of the year comes like, "Hey,
>> yeah.
>> Yeah. You forgot about that part."
>> Yeah. Capital gains is tax treatment on investment income. If you held an asset for more than 365 days, you get favorable tax treatment, 0, 15, or 20%. And really, if you're single, you would have to make over 450,000 to even get into the 20% bracket. So, you're really at zero and 15% for most of the time when you have capital gains that are longterm capital gains. If you sell an asset like a stock, Apple stock or Google stock, or an asset less than uh 365 days, this is when you have short-term capital gains. Short-term capital gains are ordinary tax rates. They start off at 0%, they go all the way up to 37%. So, we see a lot of day traders subject to ordinary tax rates, whereas sometimes long-term investors are subject to more of the favorable capital gains tax rates.
>> Here's the followup to it, because sometimes you can have a great year.
>> Yes.
>> And then you might have a down year, right? 2022 was one of those years.
>> Yes.
>> People don't talk about the capital loss that you can actually contribute to those gains.
>> That's right.
>> How how does that work? And can that be spread out over the course of years or do you have to execute that right away?
>> Yeah. So, one of the things that many investors will do is tax loss harvesting because if they have a loss, they will go ahead and capture those losses to to be able to offset gains they might have experienced earlier in the year. Let's just say that you have an excess loss, you're able to absorb $3,000 of that loss against other forms of income, W299 income. Anything that's in excess will roll over into the following year to offset new forms of income. So, those losses will always travel with you. So as far as like for entrepreneurs, right? It's made for entrepreneurs as far as the tax code to benefit entrepreneurs. Yes.
>> But some what are some of ways like you're seeing even your clients like hire and how are they taking advantage of it like through retirement plans or like through different deductions? Like what's some of the strategies that you're advising your clients to take advantage of the tax code so they could pay less money in taxes?
>> Yeah, first thing is making sure you understand how to receive the income. Most business owners starting out are going to have an LLC. you graduate from the LLC right when you hit about $60,000 in business profit. That's when we introduced the S corporation. The reason why is because now we're separating your income into two different buckets, distributions and salary. When you're an LLC owner, you just take distributions and all of that business profit is subject to 15.3% self-employment tax, which is Social Security and Medicare. I don't want to pay 15.3% on all my business's profits. So instead, I transition over to an S corporation. I give myself a W2 salary, only paying that 15.3% self-employment taxes on that salary. And the rest of my business profit is only subject to federal or state taxes if I'm in a state that taxes. So, making sure you have the right setup first is always important.
>> Well, let's let's stay with let's stay there for a minute. Okay. LLC, that's what everybody knows the LLC, right?
>> Yes.
>> And the S corp and the CP. But there you have there is it's more complicated, right? Like you have to pay yourself a set salary.
>> That's correct.
>> Right. Um, so explain that too because um, that's something that I don't think most people are aware of as far as like the the benefits, but then there's actually things that are required that are a little bit more complicated than just the LLC.
>> You're absolutely right. When you transition from an LLC to an S corporation, your tax compliance gets a little bit trickier, but not too much trickier. When you're an LLC, everything goes into your business bank account. You can transfer money from your business bank account to your personal account. Things are just so easy. When you go to file your tax returns, everything flows over into your individual tax return. You file things just one time. But when you're an S corporation owner, you have a pretty awesome business that's saving you money on taxes that comes with more complexities. What are those more complexities? Now, you're going to have to give yourself a W2 salary sometime throughout the year and cut yourself a payroll. You could choose to give yourself a bi-weekly payroll or you can choose to give yourself just one payroll for the for the entire year. But you have to give yourself a salary based off of what your net profit is going to be and what someone else is expected to earn in the same job or profession that you are in. So this is where it gets a little bit tricky because business owners need to manage their business profits in order to determine how much of a salary they need to give themselves. But the beautiful part about giving yourself that salary too is that you're still only paying 15.3% self-employment tax on whatever that amount is. So, if my business profit's 100k for the year and I only give myself a salary of $30,000, well, I'm only paying 15.3% on that 30,000 and the other $7,000 in business profit, which I could transfer to myself whenever I want to, is only subject to federal taxes and state taxes on in a state that taxes me.
>> So, so I mean that's that's a lot of game. It's a lot of game. They should know that. You talked about Well, Rashad brought up retirement accounts.
>> Yeah.
>> High earners. How should they maximize retirement?
>> Can I cuz but I just wanted to just follow up. Oh god. Yeah.
>> Can cuz this is something that's important. I don't want to skip over this. CP S Corp.
>> Yes.
>> What's the difference between a CC Corp? What's the difference between a S corp?
>> Yeah. The S corporation is a flow through entity. What does that mean? A flowthrough entity means that all of the income flows over to the individual tax return of the shareholder. The S corporation has no taxes that it pays. When it files its return on March 15th, it's just an information return. It spits out a K1 at at March 15th that goes into your individual tax return and that is what you pay taxes on your business profit inside of your individual tax returns as high as 37%. By the way, when you decide to set up a Ccorporation, there is no flow through anymore of that K1. The CC Corp has its own tax rate and it's a flat 21%. Which means the only way that you're going to ever see that on your individual return is if you decide to give yourself a salary from the Ccorporation. And this is when we have what's called double taxation. My CC corp paid 21% on business profit, but then I decided to give myself a salary of 100 or 200k and now I'm paying taxes over here personally where also sometimes Ccorporation owners can get into a little bit more tax is if they transferred money to themselves throughout the year. You see, when you're a Ccorporation, anytime you transfer money to yourself, that's considered a dividend. You're going to be taxed at a flat 20% on that. But if you choose to give yourself a salary out of your Ccorporation, that becomes a deduction for the Ccorporation because salaries are deductions for the business.
>> So, which one is better?
>> It just depends on your circumstances. In some situations, Ccorporation shareholders will take a loan because a loan is non-t taxable, right? So maybe you want to take a loan from your business profits and you're going to repay it back and you don't want to take a huge salary. So there's different ways in which we can play this as well. Maybe we want to give you a huge salary because you're qualifying for a loan and you know that you're getting ready to buy a house. So we decide to give you a salary, but maybe you're in a year where you don't really have a need to have a big salary, but you transferred money to yourself because you wanted to continue your investments. So you took a dividend out of your Ccorporation to keep your business profits high. So you have strong IBIDA in the event that you want to exit. There's different ways in which we can leverage this.
>> I'm going to keep it in that thing because you said an important date March 15th. A lot of times people don't understand the dates, the quarterly dates that you should know. Yes.
>> So I'll tie that in to I guess the retirement plan again because this is something that like if you're a high earnner, you want to have a deduction. Which are the retirement plan strategy should we use? What are the dates that we should definitely know if we're planning taxes? You said March 15th. I think everybody knows April 15th for sure. Absolutely. What are there other dates that we should know to make sure that we highlight circle put on our calendars a year in advance so we Hey, we can't miss this date.
>> Yeah, if you are on extension for your S corporation, you have until September 15th to file the S corporation. And then if you're on extension as well, that means you have until October 15th to file your individual tax returns. A lot of taxpayers that are self-employed that have investments will typically go on extension because they're waiting for their K1s to come in so that those K1s can be verified and then filed inside of the tax returns with their proper CPA. When it comes to retirement planning, I always recommend getting your retirement planning done by December 31st. There are certain circumstances when you're self-employed where you can do a catchup um on your uh self-directed 401k or your SE IRA and that allows for you to put up to about 23,500 almost $24,000 away or sometimes up to 69,000 if you are self-employed with a SE IRA. That is a way for you to reduce your taxable income. That money can't be touched until you're 59 and a half, but it can grow and continue to be invested for you. Another retirement account that most self-employed individuals are unaware of is called the cash balance plan. The cash balance plan is even bigger than the 401k. It allows for you to make a larger contribution by determining how much money you wish to retire off of today, allowing for you to evaluate your age, the size of your business, how many employees you have, and make a lumpsum contribution into a retirement account. We had a client that was 59 years old that contributed $249,000 last year into his retirement account because he decided to create a cash balance plan and that reduced his tax bill significantly.
>> Yeah. I'm glad you brought up the cash balance is something that that we are familiar with. Yes. And we've taken advantage of. Uh so the first two years of the cash balance has to be consistent.
>> Yes, it does. The exact same amount.
>> If if it's 100,000 year one, it has to be 100,000 year two. What happens year three though?
>> Year three, you can you can change the amount uh substantially. However, you still have to make a contribution every single year.
>> Okay. Okay. Yeah, perfect. Good to know.
>> And that's the um defined benefit plan.
>> Yes, defined benefit plan. Very similar to the cash balance plan. They almost work the exact same way.
>> So, when you're looking at a client like you tell them like, okay, 401k, that's one way to save money. Yes. Right. They they're familiar with that solo 401k, IRA, stuff like that. But if you really want to get the maximum amount, then you look at the cash balance plan.
>> Yes.
>> And that allows you to save up to you said $200,000 depending on how much money you make your age and stuff like that.
>> That is correct.
>> And that and that goes directly against the money that you make. So if you make a million dollar, you put $200,000. Now you rate $800,000.
>> You reduce your taxable income by 200k relative to your contribution.
>> Like dollar for dollar.
>> Uh it's not a dollar for-doll credit, it's a dollar for dollar deduction.
>> Deduction. Yes. Absolutely. Is there is there a cap on the cash balance?
>> Um there is a cap based off of your age. Yes, it is. And it's uh based off of your age, the health of your business, um the type of revenue you have in your business, but there is a cap. Um and the older and older you get, the bigger and bigger the amount you're able to contribute.
>> So, for people that have a business, what what's what would you recommend as far as like a retirement plan? Like just what's the what's the go-to retirement plan?
>> I always recommend a Roth 401k first or a Roth SAP. Um, so most of the taxpayers that I work with,
>> why do you recommend a Roth and explain the difference between a Roth and a traditional?
>> The reason why I recommend a Roth is because when you put money into the Roth, you're going to pay taxes today. We know what the tax rates are today. And we know that these are the lowest tax rates that we have had in the last 50 years. So why not take the, you know, the beating on the chest today and allow for that money to grow taxfree for the rest of your life? I want tax-free accounts in my retirement. I don't want to have to manage taxes in my retirement. So, if I can make the sacrifice right now and grow taxfree wealth right now, I know in 20 30 45 years, I'm going to be very happy about the decisions that I made. I also recommend that to a lot of parents that have children that work inside of their businesses. One of the strategies that we recommend to a lot of parents is setting up a management company um for their real estate and hiring the children through the real estate management company because we can pay children up to $16,100 without the child needing to file a tax return. we turn around and set up a Roth IRA for that child and contribute about $7,000 into that Roth on uh money that neither me nor the uh taxpayer had to pay taxes on and now that money can grow taxfree. You start that at the age of five by the child that by the time the child's 60 there should be close to about a million a million one inside of that Roth account. These are simple habits that we can develop um for our children right now that can you know pay dividends and create generational wealth.
>> What about a HSA? Is that a tax to Dr. Bull? A lot of times as entrepreneurs, you know, health insurance is something we got we got to figure out on our own or how do you approach clients when it comes to that?
>> Yeah, the HSA is absolutely amazing. I think everybody should have an HSA. You can contribute up to 83,000 or 8,300 for a family. Um, it's awesome because it's set up to provide for health related costs. So, it's a tripled tax account. When you put money inside of the HSA, you get a tax deduction for it. it grows like like a Roth IRA. So, you don't pay any or you don't have to uh be subject to any taxes on the growth of the account. And then when you go to take money out of the account, you don't pay any taxes on it as long as it's for qualified health related reasons. So, we have taxpayers that have put 100% of their HSA into Nvidia stock and they may have contributed only six or $7,000, but they're sitting on 50 or 60,000 because they started their HSA back in 2023 um when Nvidia was a lot lower. And if you don't use it, it turns into like a retirement plan at 65.
>> That's correct. Absolutely. It can convert into a retirement plan. You can take distributions from it.
>> Um, okay. Let's talk about this car situation. That's something that a lot of people have.
>> Let's do it.
>> Talked about >> section 179.
>> Yeah. Section 179 and code section 168K allow for business owners to buy a qualified vehicle or piece of equipment that's over 6,000 and write it off all in one year. The issue that I'm seeing with most business owners is they're taking 100% depreciation on a vehicle they're not using 100% for business. In the event of an audit, from what I've seen, if you don't have a log booklet that is determining the amount of time that's being spent in business with documentation and substantiation, the IRS can disallow your 100% and relegate it down. And that disqualifies you from being able to use that bonus depreciation that you were able to capture on that tax return that year.
>> So, this is this is something that's changed, right? And during the pandemic it was at 100 and then I think the last previous administration every year it had dwindled down. It was 80%, 60%.
>> And I think it was it expired and then
>> it was going to go to 40% next year. We got the one big beautiful bill July uh 5th.
>> We don't we don't call it that but yeah.
>> Yeah. OBBA. Uh and that that bill essentially gave us uh 100% bonus depreciation restored. So now business owners are able to deduct 100% bonus depreciation on qualified equipment or vehicles. And that even rolls over into the real estate space too with the cost segregation study. We like to accelerate depreciation on rental properties just like we like to accelerate depreciation on vehicles.
>> Cost segregation. Yeah. Talk about that. Explain that.
>> Yeah. So a cost irrigation study is a really awesome strategy that we use for real estate investors to accelerate depreciation on the asset to force a paper loss. This paper loss is normally passive. So, in order for us to be able to use it against active forms of income like W2 or self-employed income from an S corporation or an LLC, most times we have to qualify the taxpayer or the spouse as a real estate professional. A real estate professional is someone who can show the IRS that they spend 750 hours in their real property trader business or managing their own investment property. But the second part of the test is you have to show the IRS that you're spending more time in real estate than any other job you have. And for most W2 taxpayers who are working 40 hours a week, there's no way they're going to be able to prove that they're real estate professionals because they would have to spend more time in real estate. It works if you have a spouse that's maybe a stay-at-home spouse that can be the real estate manager, but for most taxpayers that have both working spouses, it doesn't work. This is where the short-term rental strategy comes into play. You see, Airbnb and VBO came out in what, 2011, maybe 2013. However, the passive activity loss rules were written in 1986. And uh back then Airbnb and VBO's weren't around, but they did have hotels and motel. And if you had a hotel or motel business that was being rented out for 7 days or less, you had an active real estate operation, which means you can take active depreciation against your active forms of W2 or 1099 income. Which means if taxpayers today run Airbnb businesses, they're no different than hotel and motel like businesses and they have their customers stay in the Airbnb or VBO 7 days or less. You have an active real estate business under code section 469. This allows for taxpayers now to do the cost segregation study to accelerate depreciation and now they can take a loss against their W2 or 1099 income. On an average investment property, you're taking it around 30% of the building's purchase price as a year one loss. So, if you have a million-doll property, for example, you're putting down $200,000 down, 20% down payment, but then the government's turning around and giving you a $300,000 loss write off on your tax returns. And if you're running it as the Airbnb strategy that we just talked about, you're offsetting your W2 income or your 1099 income. If you have 300K in W2 income, you're taxfree. And that's specifically for investment property. That's a specifically for investment real estate only. You cannot depreciate um personal property. It has to be investment property old for investment purpose.
>> So here's the the the tricky part, right? Because if it what if it's new build,
>> right? Like you have primary residence but you're have a new build. Obviously you have to apply for it as specifically primary or investment.
>> Correct. But how is there any fine line in in between that that you can use tax code or it it's it's pretty ph like this is your primary residence you can't do it.
>> I mean you can have a portion of your primary residence being rented um on Airbnb or set up as an investment asset. We have clients all the time that will set up ADUs in particular states like uh California and Texas. And so the front unit is their home and then the back unit is being rented it out um for real estate purposes. We take the square footage of that back unit and um perform a cost irrigation study based off of the square footage of that back unit and are able to accelerate depreciation um in that in that light. Maybe you have a vacation home. Instead of you putting 20% down, you put 10% down because it's a vacation home. Because it's a vacation home, you're not there all the time. I might be able to use that property as a short-term rental for you, perform a cost segregation study, and now accelerate depreciation, forcing some losses on your tax return that can offset flow through from your escorp or um W2 income.
>> Yeah. One of the things we would we did was the Augusta rule.
>> Oh, I love the Augusta rule.
>> Yeah. Obviously, you know, we tape in different locations. When we tape in Atlanta, we use that studio. Obviously, we can Is it still up to 14 times?
>> That's correct.
>> Explain to to the audience and how they can take advantage of it.
>> Yeah. The Augusta rule started by uh um really it was popular because of the Masters tournament that was happening in Augusta, Georgia. There weren't enough um hotels to house all of the different tourists that were coming out for that tournament. So homeowners were opening up their houses for those two weeks um and were providing housing at very high rates. The city of Augusta said, "You know what? Our homeowners shouldn't have to pay taxes on this." So they disallowed it. If you're in the state of if you're in the state of Georgia, we'll disallow for you having to pay taxes on the rental income that you're receiving during this mast's golf tournament. Well, the IRS loved that rule and made it a law the following year. We call it the Augusta rule or the 14-day rule as tax professionals. Many business owners have taken advantage of that law as well. What they'll do is they'll set up um a contract between their S corporation and themselves and all they're doing is renting their house to their business for 14 days to conduct business activities. These could be business meetings, business conferences, business events as long as those business events are ordinary, necessary, and reasonable to the business in the pursuit of income. You are now conducting in behalf of the Augusta rule. I love this strategy because it directly puts money back in people's pocket without them having to go spend more money to save.
>> Yeah. Um, what's some of the mistakes like what do you see that people get audited the most for?
>> Yeah.
>> Like what's the mistake that they make as far as that's concerned?
>> Yeah, most audits happen because people make omissions. Omissions means you left something off of your tax return. Most taxpayers who get audited are schedule C business owners, sole proprietorships, single member LLC's. Why? Because they receive a lot of 1099s. They sometimes forget to report all their 1099s. And guess what? If you forgot to report that 1099, it got submitted. The IRS knows you you received that 1099 and they match it up to your tax return and flag your tax return immediately. That is one of the biggest ways that people get into audits. The second is using categories on your tax returns that are essentially red flags to the IRS. For most single member LLC owners, the two categories that they like to use is other expenses and miscellaneous. To this day, I do not know what a miscellaneous expense is, but I know that many taxpayers who like to file their own tax return love to use that category. and other expenses. When you have other expenses as a category, that means you don't know how to really categorize the expense. So, you're putting it in the category that the IRS set up for you called other expenses. And now you have to list out each line item of what those other expenses were. I have seen some of the craziest things, guys, on some of these other expense items. Massages for my team, uh, baseball memorabilia cards. What are these are not ordinary necessary expenses to your business whatsoever. So, why are they landing here? That gets you flagged and that gets you audited. And yes, schedule C businesses are highly more likely to get audited. Actually, 33% more likely to get audited um than S corporations or partnerships.
>> Man, that was triggering cuz every month I get that itemized sheet and it's a breakdown and I'm like, "All right, I got to think about what that was. I got to think about like, yo, that's not my card. Let me figure then I like I'm pretty good with it. My memor is pretty good." Yeah. Um but yeah, you're 100% spot on. We I want to talk about I started because I'm like I got to ask him about the salt deduction.
>> Yeah.
>> Because I don't think people are familiar with it. They know that the rules have changed. As a homeowner, this is something that people can take advantage of. So break down what the salt deduction is, how it's increased, and how we can benefit from it.
>> Yeah, absolutely. So stalt salt stands for state and local tax. If you are in a state that taxes you or you are in a local municipality that taxes you, the government allows for you to deduct that off of your tax return. So, let's just say that I'm here in the state of New York and I live in Manhattan. Manhattan has its own um city tax and then the state has its own state tax. I can deduct that off of my tax returns. But here's the issue. I'm limited to only $10,000 between state and local tax. Well, if I own a property here, too, I may have $50,000 in property taxes this year. I might have paid $60,000 in state taxes, and then this the city of Manhattan charged me another $1,200. I'm only able to deduct 10,000. Well, with the OBBA, um, we got an update.
>> Appreciate you for that.
>> We got an update and now it has increased to 40,000. There's a cap. If you're making over $400,000 adjusted gross income, you don't receive that 40k. It drops right back down to 10,000, but it still helps out a significant amount of taxpayers because most taxpayers make under 400,000. So, if you're in a high tax state like California, Hawaii, New York, this helps you significantly. You're now able to write off up to $40,000 of your state taxes on your tax returns, property taxes or local taxes, helping out many people.
>> So, high earners not going to really help the average person definitely helps.
>> Yes. Does not help high earners at all. You will not qualify for it.
>> Good to know.
>> Um, when you when you look at like the child tax credit, right?
>> Like that's something that a lot of people are not familiar with and don't even take advantage of. But
>> what what should every parent know as far as that's concerned?
>> Yeah, the child tax credit is is something that you should take advantage of is your child is underneath the age of 18 and they are someone that you support, you're able to get $2,000 per child and that's a credit. It's not a deduction. Part of the reason why the child tax credit is so powerful is because many lowincome households will have multiple children and when they go to file their tax returns and report their income, they're getting back a sizable refund because the child tax credit is a refundable credit. Which means if I only paid $8,000 in taxes, but I have $16,000 in a tax credit, I'm getting back $8,000 in a refund from the government. $8,000 when you're only making $40,000 a year is a significant amount of money that could support you and your family possibly for another month or two without you having to receive money from your current job. So for many lowincome households, the child tax credit is one of the most beneficial things that they apply for.
>> Let's talk Let's keep it with the kids. Uh because I believe July 1st of this year, uh Trump accounts go into effect.
>> Yes, they do.
>> Yeah, this guy's good at marketing. Um so so talk to to us about that. the benefits as employers, how you can use this to your advantage. It's for every kid that is born in 2026 or is it every kid under the age of 10 as of 2026?
>> I believe it's for every kid that's born from born in 2026 moving forward and for children who are currently under the age of 10 can apply for a Trump account. Okay.
>> Um and get a $1,000 funded by the government and that money can continue to grow in a tax advantaged way. Honestly, it it's great. I still favor the Roth IRA for your children. You can set up a custodial Roth. I think it's way more beneficial to have the custodial Roth, but
>> why not just set up the Trump account for your child? That's money that's just going to grow. I mean, the um analysts are already doing numbers on it. If you just let that account grow from the day your child is born to the time that they're believe 62 years old, there should be close to about $800,000 in that account. That is generational wealth. So, I think the Trump account's absolutely amazing. It's one of the many things that Trump kind of slid in there as a part of all the other updates um to be able to bolster his uh his uh candidate presidential candidacy.
>> Is it do employers have the ability to match it or or is there still some clarity that needs to be like provided?
To us on that? >> Uh, based off of what I know, I don't believe the employer's allowed to actually, you know, what I believe there is a way in which the employer can match it, um, for their own child, but I don't know about for the children of their employees. I would have to look into that. I would have to look into that. Yeah.
>> So, you said like, uh, a high-income earner can still be fragile if they don't transfer over to ownership?
>> Yes.
>> Just because you make a lot of money doesn't mean that you're like, you know, in a stable position when it comes to finances, when it comes to the tax code, and just in general. So,
>> Correct.
>> Explain that.
>> Yeah. So, there's a lot of taxpayers that make a lot of money, but just because they make a lot of money on paper doesn't mean they're taking home a lot of money. And a big reason why is because they're earners. They're not owners. You can be an earner in this, in this, you know, government, but guess what? They're going to penalize you for just being an earner. Or you can choose to be an owner, buy assets like rental real estate, oil and gas, solar, and now you have incentives that were written into the tax code flowing onto your tax returns that you own. This turns around, provides deductions for you. The biggest one, of course, is going to be depreciation with real estate, but solar is also a powerful tax credit for many taxpayers. You could choose to put solar on your own house, or you could choose to start a solar business and work with a third-party company and install solar on others people's houses. You still own the assets. So you get to depreciate them and you get to take the tax credit relative to 30% of the purchase price. So that ends up being a significant, significant tax savings that people can receive when they're going into energy.
>> It's a good one. So, so there's this idea, obviously financial education, that's our thing. I feel like financial structure >> is is your thing. Can break those two things down because I feel like people >> the first step is understanding. Yeah. Right. The next step for me is being able to be fluent about the understanding and explaining it.
>> And there's this piece I think that is vitally important, what you do, the financial structure. Yeah.
>> Talk about the the why that's so important.
>> I believe it's important because a lot of people over time, as they as they build wealth, they're building wealth based off of their own understanding. Maybe you'll choose to go read a book someday, but that book is not going to give you all of the different tidbits into how the tax system is structured to be able to serve you and your financial growth. What I've chosen to do is I've chosen to structure my finances in a way with the tax code so that I'm doing things that the government wants me to do so I can turn around and make more money at the exact same time. And in order to do that correctly, I have to understand that debt is a good thing. It's a tool. It's something that I can use to my advantage. I understand that there are certain wealth teachers that teach you to be 100% debt-free. However, the tax code is not written like that. And we all operate underneath that tax code. And so getting the correct financial structure can be the big difference between you getting to 100 rental houses or only having 10, just based off of the way you think, right? Um, another thing too to take into consideration when it comes to financial structure is entities. Many taxpayers may have a few LLCs, but maybe those LLCs are all just floating out there without one centralized parent company. I love using parent companies and I typically gravitate towards states like Wyoming and Delaware because the state of Wyoming has a court of chancery that's been set up to handle disputes for business owners and landlords. But more importantly, they don't require your name and information to be at the county assessor's office or on public record. So I can fly under the radar owning all these different entities. When people go look up my entity, they don't know who owns those entities. So I'm in a different financial structure for growth. Whereas someone who doesn't even understand about these different things might be completely exposed, gets a lawsuit while I'm running at 1,000 mph. They're only running at 50 mph. There's the difference in speed to wealth. And it all comes down to structure.
>> So talk about like, what's the difference between Delaware and Wyoming? And if somebody's starting, should they incorporate their business in Delaware? Should they move it later on once it's profitable? Like, what should they do?
>> Yeah, Delaware is the golden state for most corporations. You'll see all publicly traded companies have their companies set up in Delaware. And then real estate is probably the best state, or Wyoming is probably the best state for rental real estate. You'll see a lot of landlords set up their LLCs in Wyoming. Wyoming is a perfect place to have your parent company, the entity that's going to own every other entity underneath it. Why? Because that state doesn't require your name and information to be public record. If you go to set up an an LLC in Wyoming, you'll set up a registered agent, you'll create the LLC underneath the name, but it's not going to post your individual name, you being the managing member, on the public records. So then that parent company can own an LLC maybe in Texas that has rental properties in Texas. It could also own an LLC in Arizona that has rental properties in Arizona. And at the same time, if something were to happen in Arizona, you're abiding by Wyoming laws in the event that you get into a dispute with your tenants or there's a circum a circumstance that comes up that shields you because Wyoming has specific laws that are uh favorable for landlords. Delaware has specific laws that are favorable for corporations. Large corporations go to Delaware to incorporate there because there's a court of chancery in Delaware that deals with corporate issues specifically for business owners. A lot of business owners feel like the laws and and uh legislation that was written in Delaware supports the growth of a business owner more than any other state. That's why most business owners who are publicly traded companies are looking to exit, uh will set up their entities in the state of Delaware.
>> I'm glad you said that. There there's there's another thing that's happening in the great state of California. We're starting to see a lot of, you know, those >> exodus, the billionaire >> the the billionaire exodus. Uh, we recently uh, we we saw Elon, and then we now have seen Mark Zuckerberg pick up his things and buy a $170 million mansion in uh Miami >> happening. >> Yeah. Talk about that. I mean, when on the surface it feels like your wealthiest residents are not going to be incentivized to stay there, and so they leave, and then, >> you know, that continues at at a higher rate. What What's your thoughts about this?
>> Criminal. Absolutely criminal. To be completely honest with you, how are you going to put a billionaire's tax on the wealthiest billionaires in California based off of the amount of assets that they have? That's insane. You're essentially saying, "Sell your assets in order to pay a tax because we said so. We're the ones that got ourselves into this debt, but you're going to be the ones that have to get us out of it." Billionaires are like, "No thanks. I'm out of here." Why? Because billionaires have choice. And they want to go to places where they're respected. They want to go to places where they feel like they're wanted and they're appreciated. That's why they're gravitating towards states like Texas and Florida, primarily Florida. Why? Because you have people like Ron DeSantis that are on the the news every single week speaking up for his own state, pushing for no property taxes, supporting entrepreneurship. And then you have people like um Gavin Newsom, you know, bashing billionaires, um misappropriating California funds. We have no idea what's happened with all the taxpayer dollars. And there's a whole investigation going on right now into that. I'm sure um we can talk about that for a later time. But we're dealing with a situation where people are losing trust in California, and then you slap us with this billionaire's tax. That's the last straw for many people.
>> When you own real estate, should you always have it in an LLC?
>> If you believe in long-term wealth creation, you will always have your rental properties inside of an LLC, no matter the fact that it may cost you $800 to set up an LLC and you have to file a tax return. That's a small drop in the bucket for a big problem that can happen later. We've seen taxpayers that have had uh customers slip and fall in their Airbnbs. Storm drains have fallen down during rains and have hitting people in the head. Next thing you know, $100,000 is going out in a check. $200,000 is going out in a check because we never set up the right proper liability protection. That is so, so important.
>> So, it's really for protection purposes.
>> It's 100% for >> Does it make any difference for taxes or No,
>> Absolutely not. Setting up an LLC does not save you money on taxes. This is a big misconception that many people have. "I need to save money on taxes. I should just go set up an LLC." An LLC is just a tax structure, is saying, "I want limited liability protection." Really, how you choose to utilize that LLC will determine if you can save money on taxes. What expenses are you putting inside of that LLC that are going to draw down your taxable income? So, it's a big misnomer in the tax base that setting up an LLC automatically saves you money on taxes. It doesn't.
>> Yeah. It made me think of the the idea of having your brokerage account inside of your LLC. Yeah. More for protection than it is for tax. Capital gains is capital gains. Yeah.
>> Short-term or long-term.
>> That's correct.
>> Yeah. I wanted because we talked about capital gains, short-term and long-term, but there was this idea, this this this premise of maybe we tax unrealized gains. I want to get your thoughts on that, cuz I'd have mine, but I want to hear from the professional.
>> Yeah, I mean, taxing unrealized gains is pretty tough because you're essentially penalizing me for holding on to an asset that I believe in. And then let's just say we get to the end of the year and I have all these gains, but then the stock market takes a huge hit. Well, now I just lost everything and I paid taxes for on money I don't technically have anymore. I don't see how that's fair in any world. Um, and I don't see I don't see that being passed. I don't see that coming to fruition. But we get all these different proposals because, you know, these different agencies, what they like to do is they like to shoot for the stars and land on the trees. They like to swing for the highest things that they can possibly achieve and land on something a little bit softer.
>> And right now, you know, we we originally had Trump uh shooting to, you know, get rid of uh some taxes, but we landed on only 40% SALT tax. These are the types of things that happen when Congress is talking. They're shooting these big, big ideas out and then we kind of vote and land on these smaller ideas.
>> So talk about social media because that played a part in your your branding, your marketing.
>> Yep.
>> Um, what what gave you the vision for that and how has that shaped your career path?
>> Yeah. So, um, I picked up a camera when I was 14 years old. And part of the reason why is because I really loved uh the TV show Jackass and all the little uh, you know, different skits that they were doing. And uh, when I got into fitness, right when I graduated college, it was important to have uh videos out teaching people how to work out correctly. I had spent years uh perfecting my fitness, you know, in college with football. So that's kind of when I started picking up the camera. It didn't happen really the blow-up until 2020 when I decided to get on YouTube. And I researched how do you pay yourself as an LLC? And I realized there was no YouTube video for it. So, what I did is I decided to create a long-formatted video on how to pay yourself as an LLC. Posted it on YouTube. Didn't didn't think anything was going to happen. 30 days later, I got emails that I were that were unresponded from Google AdSense saying they needed me to open up a bank account and connect it to my Google AdSense account because they're trying to send me a check. And I went back to my YouTube account. Within 30 days, I had 30,000 subscribers on my YouTube account. One video, "How to Pay Yourself as an LLC." That video is now well over five, six, seven million views and um has allowed for me to create more videos. And what I focused on early on was not creating videos for myself. I created videos based off of what was missing on the internet. I just started typing in on the internet, "How to pay yourself as an S-corp," "How to pay yourself uh as an LLC tax as an S corporation." There was just none of these videos. Then I found out about Google Trends and I realized that people Google search things and you could just find out what is the trending Google searches. So I typed in "tax" and found out all the things that people were Google searching right during the pandemic. "How to receive a stimulus check?" "How to receive the EIDL loan?" "How to receive the PPP loan?" "How to place my children on payroll?" "Should I set up an LLC?" "Should I, what are the top five write-offs for an LLC?" I covered the entire landscape and I viewed YouTube as real estate. I wanted to take up all of the real estate on the internet for anything related to tax. And that's when I put my head down and went to work. Uh, and and fast forward, we're at, I think, like over a million subscribers now. So, we've been doing well.
>> Congrats. I mean, you said it. So, I'm I'm thinking like, I I used to have this idea of, you know, what people can write off when they're entrepreneurs, right? I was a W2 employee for like 14 years.
>> Yeah.
>> And I'm like, man, that would be great if I could write off my, you know, my uniform or the equipment. What are the the top five things that LLCs should be looking at to write off?
>> Yeah, I mean, for for starters, most LLC owners are living under a house, so they should definitely be taking a home office deduction if they're working for the convenience of their home. They're most likely using a computer to conduct business. So, those are automatically ordinary necessary expenses. They're going to have a cell phone. So, these are just the basic things that they should be deducting. If they have a vehicle, they need to determine if they're going to take the mileage expense or the actual expense. Mileage means that you can take, I believe, I think, man, it might be up to 75 cents now this year per every single mile that you drive, or you can choose to take the actual expenses associated with your car, your car payment, the gas, uh, the utilities associated with running your car. Um, and then last but not least, if you ask me, advertising. I mean, most businesses can't grow unless people know who you are. And so, if you get on the internet and you pay for subscriptions, you're paying for YouTube videos, SEO, all of those expenses are ordinary, necessary to the pursuit of income. Those are the basic things that every single LLC owner should be taking on their tax returns.
>> What's the like biggest secret of the wealthy or like what's the biggest thing that you think most the common person doesn't know that wealthy educated people are doing to take advantage of tax system?
>> Wealthy educated people are taking advantage of uh charitable uh structures. They're setting up 501(c)(3)s and using them completely different than the average public. When you set up a private family foundation, you can roll over 30% of your adjusted gross income into your own foundation. It's yours. It could be a non-performing foundation, meaning you don't even have to let the public know what you're even doing. You can just have a foundation and it doesn't even do anything yet. 30% of your adjusted gross income can go into it. Only 5% of the charitable assets have to be contributed to another 501(c) or qualifying uh charity of your choice every single year. There's no capital gains tax inside of a foundation. You can have that money invested inside of stocks or assets that can continue to grow in a tax-advantaged manner. Not to mention, many of these wealthy families will hire their children or family members to run their foundations and carry out the the philanthropic work. And that's another way to shift income to a taxpayer that you were trying to get income to without creating another tax um for them.
>> So, explain or say you have $10 million, right?
>> Mhm.
>> You said you do you put 30% >> you can shift 30% of your adjusted gross income. So, $3 million.
>> So, $3 million into a charity that you set up.
>> Yep. A 501(c)(3) called a private family foundation.
>> Private family foundation.
>> Correct.
>> $3 million goes into the private family foundation.
>> Then what happens at that point?
>> Only 5% of those assets have to be contributed to another qualifying 501(c)(3) by the following year.
>> 5% of the >> $3 million.
>> $3 million.
>> That's correct.
>> Has the $15,000 >> $15,000 >> $150,000. Yes. So, $150,000 has to go into a charity,
>> Correct?
>> The remaining $2,850,000 stays in >> the foundation.
>> And and what happens with that?
>> Well, hopefully you're going to grow it, right?
>> It's invested.
>> We want it invested. What? We don't want it just sitting stale cash. Absolutely not. That'd be a horrible idea. We want it invested. Conservative assets.
>> And then so bonds, mutual funds, you can do that on behalf of the the nonprofit.
>> Correct.
>> It's in All right. So it's in So the two the $2,850,000 >> stays in your family nonprofit,
>> Correct?
>> Is invested in the market. It's growing.
>> Correct.
>> Then what?
>> You're going to have to make another donation in the following year. But before you make that donation, what if you use the foundation to carry out philanthropic work? Then the assets inside of the foundation are assets that are used on behalf of the shareholders of the foundation. So if I need to go fly to Africa for say, for example, one of our clients did this last year. She flew to Africa and she built wells out in Africa with her and her family. She paid for her and her family to go out there. She paid for a lot of the stuff that she did. She had a film crew out there with her. She paid for their experience. She stayed in a great hotel. All of those were expenses. So it dropped down the asset value of the foundation. There's a calculation, too, to where legal fees go into that 5% as well. So her legal fees get calculated. A part of the payroll gets calculated into that 5%. So she's paying out salaries as well. It's actually math that gets involved in that 5% versus just saying >> 5% of whatever's left over just has to be written off. There's a calculation that's involved with that.
>> And so the travel, all of that is deducted from the $2.8 million.
>> Correct. Reducing the charitable assets.
>> And that's tax-free.
>> That's tax-free. Yes.
>> And the money that grows is tax-free.
>> Yes. It grows tax-free. And if you hire somebody, you can pay them from the $2.8 million.
>> Yes, you can. And they'll earn a salary.
>> That's taxable to them.
>> That's taxable to them.
>> Correct.
>> Yeah.
>> It's a lot.
>> Yeah.
>> One of the one of the strategies that our clients uh utilize that are making over $2 million in net profit with an S corporation um that spend a lot of money on ads is they set up an advertising company as a C corporation. But instead of setting up the C corporation to exist on the same fiscal year end as the S corp, we set up the fiscal year end to be 365 days later than the S corporation. Let me give you an example. Let's just say we're in the month of November and you have $2 million in net profit sitting inside of your business. But I know that you spend money on ads. You rip 100, 200k in ads every single month to grow your businesses. Well, you know what your ad budget is going to look like for 2026. We're in 2025 still in the month of November and December. So, I set you up a C corporation advertising company in the month of November that has a fiscal year end of September 30th, 2026. That means that if you make a contribution or a management fee over to that C corporation, your S corporation gets a tax deduction. You'll file tax returns for your S corp March 15th, if you go on extension all the way until October 15th. But your C corp now has money inside of it and its year doesn't end until September 30th. When its year ends, four months and 15 days later is when it files its tax return. So if September 30th is the fiscal year end, October, November, December, January 15th of 2027 is when we file a tax return for that C corp.
>> So that means that if you had $2 million sitting inside your S corp and we write a check for half a million dollars over to that C corporation, you just got a half a million dollar deduction. Congratulations. You saved about $115,000 on your taxes. $500K is sitting inside of your C corp. Now, you're going to have to spend that money down or you're going to be subject to 21% tax rate. But I bought you 9 months. I bought you from January all the way up until September 30th >> for the ads >> for the ads. Whatever you don't spend is subject to 21% tax rate. So, this is a way for taxpayers who, you know, want to be able to still stay in business to be able to use entity structures successfully um to uh reduce their tax liability and to also um be able to grow their business at the exact same time.
>> This is the conversation I feel like that's had when people see corporations pay 0% tax and they're like, "How?" It's like these type of these are strategies.
>> It's that's an income shifting strategy. You're shifting income from one entity to another entity that's filing tax returns on a completely different fiscal year end. Absolutely incredible.
>> You you set your fiscal year end.
>> You set your fiscal year end with a >> C corp. Pretty awesome.
>> Yeah, that makes sense.
>> Yeah.
>> So, the marketing that you do, the social media and stuff like that. Yeah.
>> Has that helped your business or has that >> taken away from you actually practicing the business and focusing more on like the branding >> Yeah. aspect of of a business.
>> Yeah. So, early on it was just creating content as Carlton Dennis, the YouTube guy, putting out education. The education led me to creating my own firm, and me creating my own firm led me to bottlenecking myself to then needing to hire a bunch of tax professionals and CPAs underneath me, uh, to then being able to focus back on the personality. 96% of Tax Alchemy's revenue comes from social media, uh, primarily from YouTube and from Instagram. I would say 70% of that is from YouTube and the other 30% >> clients.
>> Clients.
>> So that's still your main business.
>> Yes. Is clients >> is clients.
>> Yep. Tax planning.
>> High-income clients.
>> Yeah. So half a million up to uh, $100 million.
>> You only take a half a million.
>> Only half a million and up. Yeah. There needs to be enough liquidity that the taxpayer has in order to invest in tax-advantaged strategies because we use a lot of tax-advantaged strategies that require investments. Um, but if you're underneath that amount, you could still do tax planning, you're just not going to save the amount of money that you might hope to save because real savings comes from paying real tax. And if you're not paying a lot in taxes yet, you're not going to feel like you're saving a whole lot.
>> Yeah.
>> You know what I mean? If you're only paying $20,000 in taxes and you save four grand, is that is that life-changing money? Life-changing money is being able to come back to somebody and say, "Hey, you were about to write a check for $150,000. You don't have to do that anymore." So, what's the process if somebody wants to work with you? Walk us through the process of of your firm, like what's the >> the intake and what's the like steps?
>> Yeah. So for our process, most of our clients will come to our website. We have a VSL, so they watch a video sales letter for about 15, 20 minutes, just educates them on the process of tax planning. They get on a call with one of my tax specialists, and what we're doing is we're qualifying you. We're looking at your income. We're trying to figure out what's the pain level. Are you are are you are you tired of paying taxes like this? 90% of our clients that come over to us already have a CPA. They're already working with somebody that's filing their tax returns that they trust. We understand that you have a CPA, but you don't have a tax strategist, somebody whose sole job is to figure out how to reduce your tax bill in real time. So, for many of them, they're understanding what a tax strategist is for the very first time.
>> So, you don't do taxes.
>> Oh, we do. Absolutely. But we earn that business after we've done a tax plan. We never offer tax prep initially. We only offer advisory initially, and then we pick up tax prep on the back end. A tax and accounting firm will offer you when whatever you can call them up and say, "Hey, I need my tax return." "Sure, here it is." To do a tax return. But an advisory firm only offers advisory first, then we pick up the tax and accounting business on the back end, which means that we're only working with the right type of clientele that we choose to work with. If I'm doing tax returns, I could work with someone who's making only $60 or $70,000 a year and then go serve someone who's also making $1.2 million a year. That's not my business model. My business model is to work with high-income earners because I know exactly the type of involvement that I have to spend with them in order to get them to save real money and to get them to walk through doors they've never walked through before. And that requires spend a lot of time educating them.
>> And if you're not at a point yet where you're paying a lot in taxes, what's the point in educating you about things that you don't really get an opportunity to use yet? So, we have a really structured system there. Are you training the employees that that you bring under the firm? And what's that process like if somebody's listening, they're like, "Hey, that sounds like a firm I I definitely want to be a part of or or try to apply to be a part of."
>> Yeah, we train CPAs on how to do tax planning and we train enrolled agents on how to use tax planning. They use our software, they learn how to create our tax projections the way that we do it, factoring in uh state jurisdictions, uh using our court case law that we have garnered over years of experience of collecting IRS court cases and shaping our understanding around tax law. Um, and we built a system around how to train them. Just like how many course creators will create you a course on how to do X, how to do Y, I have an internal course inside of my company on how to do tax planning and deliver high-level advisory services and communicate it in a way that can get a desired result for a customer.
>> That's a lot of good information for sure. So um, what's this what's the social? What's the website? What's the YouTube? Like how can people actually follow?
>> Yeah, absolutely.
>> Learn and and what do you put on there on a consistent basis?
>> My goal is to continue to put out the best tax knowledge that I possibly can on my YouTube account and on my social. There is a gap in the tax and accounting space, an absence of tax professionals that want to teach people the tax code. My duty and my obligation is to simplify something that is very complex and to make something that is boring seem sexy. And I think I'm doing a pretty good job of that. And I need to continue to do an even better job at that. People can reach out to me on social media, but they also follow us on our website at www.taxalchemy.com. uh look for us um on our YouTube account, Carlton Dennis. Um, and you can also reach out to um um on our uh LinkedIn account as well. We get a lot of tax professionals that are interested in applying to work with us uh through our LinkedIn page as well.
>> How is Mom looking at you now?
>> Mom is Mom is proud. Mom is Mom is absolutely proud. Mom has done so much in the tax and accounting space. I mean, she is a humble, a humble woman already as it is, but she blew up off of TV and radio shows, and I blew up off of YouTube and Instagram. So, we have two different paths, but we are literally the same person. And it's really beautiful now being able to see her step back from her firm and allowing my two younger brothers to run her firm, and me being able to take some of the things that she taught me and the processes around tax planning and how to handle an IRS audit and build an advisory firm that serves the clients that I like to work with. And so, we have a beautiful family that works really well collaboratively together. And um, we both have our own separate firms because my clients are completely different than the types of clients that she serves. But there's an ecosystem that allows for us to be able to serve one another. And that's what's beautiful about our relationship. One of the strategies I have to leave you guys with is IRC 81. IRC 181 allows for you to write off the cost of the production of a movie film. Now, movie film production companies, they spend tons of money on these movie projects, but what they do is they sell or finance the production rights to investors. And so, what my clients do is they invest money into movie films and become partial owners of the movie films. But in order to do so, they take out a loan from the production company through seller financing. It's a leveraged 4:1 strategy. For every dollar that they put in, they're taking on $3 of recourse debt, the loan, but then they're whole for a total of $4. So, if you put in $100,000, you're getting a $400,000 deduction by investing money into a movie film. Last year, we had clients invest money into Mark Wahlberg movies, Jackie Chan movies. They are owners of those movies. They're going to earn cash flow from those movies, and they're receiving an active deduction on their tax returns. When I when they ask how do I how is this active in the movie space? You have to materially participate, and material participation is 100 hours spent in your real property trader business. These taxpayers have to spend 100 hours watching other movie films in order to qualify as an active participant in the movie space. That is one of my favorite strategies we like to utilize.
>> Yeah. I feel like we all do that.
>> Exactly. Who wouldn't do that, right? We we we put over seven figures into movie films last year. Um, me and my wife. Talk about the the timing of acquiring assets as a tax strategy.
>> Acquiring assets is extremely important. For example, when it comes to the short-term rental strategy like we were talking about, you don't have to run a short-term rental all year long. The IRS states that you only have to spend 100 hours managing your short-term rental, and your tenants have to stay in the property 7 days or less. So, we have clients that acquire a short-term rental in the month of October. They run it as an STR for November and December, and then they convert it into a long-term rental managed by a paid property manager in January. They literally only ran the property as a short-term rental for 12 weeks out of the year, yet were able to perform a cost segregation study and accelerate depreciation. That's just one of the many ways when timing strategies makes so much sense.
>> Whole lot of game.
>> There you have it. Whole lot of game. There you have it.