Tax Expert: HUGE Loopholes In Trump's Big Beautiful Bill - What NO ONE Is Telling You!

the one big beautiful bill. >> He's signing the bill. >> Who's going to lose the most from the big beautiful bill? >> The uneducated are always the losers because if you don't know that the tax code is a game, you will get left behind and you will always end up tipping Uncle Sam. The most common mistake people make is they make money, pay their taxes, they never try to figure out ways to save, reinvest, or utilize the government system to their advantage. But this is an opportunity for everyone to get educated right now and to gain control of their financial future. For anybody that wants to build their wealth, you can take advantage of the tax code by following the government's rules. So what if so few people know about these strategies? Because the wealthy do not want to share the secrets. If everybody knew about this tax strategy, I don't think anybody would be paying taxes. And I'm serious. So, this is a podcast that I've really been looking forward to because I'm a nerd when it comes to taxes. For years, I have made tax videos on YouTube. I talk about taxes non-stop. It's all I think about. >> Yeah. >> Is the tax system rigged for the rich? >> It is rigged for the rich. Yes, it is. Absolutely. If you're wealthy, you have more options. And I think if you're lower income, you have less options. And most people that are lower to middle class typically are working for somebody. So they're limited on the amount of deductions they can take. As you approach business income, you increase your your wealth. You start to qualify for deductions, exemptions, and tax credits that can offset your tax bill. >> Is this ever meant to be something that's fair or is this just the way it is? Because I look at this in one sense like rich people get these huge advantages that everyone else doesn't get access to. So, if you're self-employed and you make a million dollars a year, the options to reduce your income are limitless essentially. That's correct. >> But on the other side, you have I think it's like the top 50% of taxpayers pay 97% of all the taxes. So, they're the ones paying the most into it. So, it makes sense that they get the most out of it dollar for dollar. >> Yeah. The middle class pay the highest tax rates, bro. And the top earners pay the least amount of taxes possible. But you have to realize that the top earners are spending the most amount of money and they're doing what the government wants them to do. They're investing in oil and gas. They're investing in renewable energy and they're investing into rental real estate providing affordable housing. So they get the massive amounts of tax credits and paper losses that offsets their active forms of income. >> So how much of the incentives, credits, deductions, etc. that the government offers these wealthy entrepreneurs and business people is because of like a utilitarian perspective that they want to like boost the economy versus being like a buddy buddy thing because like money and politics are usually intertwined. I think what it is is that the government understands that they can't provide everything for the everyday taxpayer. They can't provide affordable housing for everybody. They can't provide gas for everybody and cover everyone's stove and uh car gasoline. So, they're going to partner with business owners who are going to go and drill holes in Texas and business owners who are going to buy commercial properties and provide affordable housing and create tax incentives because they understand that they can't do it all. And so, if you're somebody that has more access to money, you're going to be able to play in this arena of investing into oil and gas, investing into real estate, investing into EV and solar energy, and you get to benefit the most. But if you're lower lower income, these opportunities you don't even hear about. All you hear about is 401k and possibly buying a home and writing off property taxes and having a child tax credit. >> So, how do you learn about all of this? Like, what certifications do you personally have to get to keep up to date on all of this? >> So, I have an enrolled agent's license, which is different than a CPA license. A CPA typically goes to school to study accounting. They normally get a bachelor's degree in accounting and then they go directly into filing tax returns. That's what 99% of all CPAs do. Enrolled agents pass three different tests, an individual test, a business test, and an ethics test, which means we primarily study just tax code and consulting around how to leverage the tax code. So, when it comes to write-offs and how many deductions you can take or which deductions to take, an enrolled agent is pretty optimized to be able to help you, whereas a CPA may not be able to play in that arena. But when it comes to filing your tax returns or doing bookkeeping and accounting, CPA all day got your back. And that's the person you want signing on the tax return. So, what if so few people know about these strategies? >> Very few people know about tax strategy because the wealthy do not want to share the secrets. It's not until you get into these rooms to where they're starting to tell you what's possible. And this is just from experience of what I've known. I knew that when I was building my wealth, I didn't have access to all the information that I have right now. And it's because people weren't sharing this information at my at my dollar amount. If you're talking to people that are making $1500 to $200,000, you might be talking to people that are just taking a home office deduction. You might be talking to people that are just riding off a car or a cell phone. But you start jumping up to people that are making a million to $5 million a year. You're seeing different things on their tax returns. You're seeing oil and gas. You're seeing investments. And these things create deductions. And they're also incentives inside of the tax code that the government wants you to do. So the conversations start to change the higher your income increases. So, we've all heard of the trope about the billionaire that pays 0 in taxes. Is there any way that the average person can pay $0 in taxes? You can pay $0 in taxes if you want to give money away. But most people aren't going to decide on that table. They're going to say, "Hey, how do I keep money inside of my pocket?" So, the only way that you're going to be able to pay 0% in income taxes is if you have enough deductions or losses that are working against that active forms of income. And for me, I'd rather have a business or rental property that creates those deductions or losses. Do you ever think it's possible to get rid of the tax code entirely? Just like no taxes. Trump has been talking all the time about like, hey, we just do tariffs, come back to tariffs, >> abolish the IRS >> or just even a flat tax. I would love just a flat tax across the board. Everyone pays >> 15% no matter how much it's 15. >> Here in Vegas, it works out beautifully. We just have these casinos and then the people that come and they visit, they stay, they pay a resort fee, they they fund the city of Las Vegas, basically the entire state of Nevada, because they like to go and they like to spin the slot machine, they like to go put some money on the roulette table. It's so nice. As a resident here, is anything like that possible on a bigger scale in the United States? >> I don't believe so at this current juncture. America's in a lot of debt. We believe we collect some of that from tax revenue from our taxpayers. Um, but most importantly, we only have a few states that don't tax us. Most states rely on tax revenue to run. If you're asking me, can we completely abolish federal taxes? That's a conversation I would like to entertain because originally, United States was not ran off of taxes. We were ran off of tariffs and excise taxes. We collected things off of goods, tobacco, things like that, alcohol. I would love it if we could have a flat tax, maybe a 15 or 12% just flat tax across the board, but that's a big stretch. What Trump has done is he is reaching for the stars by saying, "Let's completely abolish the IRS." But what did we land on? The big beautiful bill. We landed on him being able to keep his tax cuts and jobs act that he incorporated in 2017. And now he he extended that and made that permanent. Hey, I want to make sure that those tax rates don't jump back up to 39%. We have a 37% federal tax rate. But if we go back to 2017, bro, we're paying 39% in federal taxes. Pretty insane. to a lay man though going from 39 to 37. It's kind of just like I mean it's not like for all of the talk that people have been doing about cutting taxes, the Republicans are going to slash taxes and then we go down 2%. But it's not just that though. It's it's every little tax bracket in between. >> It's every tax bracket in between. You had 39% go to 37%. You had 35% go to 32%. You had 30% go to 28%. Now we have a 22% tax bracket instead of a 25% tax bracket. We have a 12% instead of a 15%. we have a 10% instead of a 12% and they extended the tax brackets. So instead of you jumping from the 12% up to the 22% after you made 150,000 and maybe at 200,000. So he extended your ability to get taxed at a higher rate and lowered the tax rates at the exact same time. But what he also did is he increased deductions across the board. Primarily the standard deduction. The standard deduction is a deduction that you're given just if you breathe and make over $12,000. you get to take the standard deduction. In 2017, he increased the standard deduction from $6,000 to $12,000 for single individuals and from 12,000 to $24,000 for married couples. So, if you're a married couple, you get a $24,000 deduction back in 2017 as a part of his Tax Cousin Jobs Act. He also incorporated adjustments for inflation. So, now that we're here in 20125, that standard deduction is $31,500. Think about where it was back in 2017. That's for married filing joint. And if you're single, it's uh $15,750. >> So, what does the average person stand to gain or lose from the big beautiful bill? >> The average person, and when I say average, I want to make sure that I say that correctly, the medium income in the United States is right around $70,000. So, the average person is going to see an increase in the amount of wages that they take home every single year because of the be beautiful bill, the extension of the tax cuts and jobs act, the increase in the standard deduction, and the increase in the child tax credit. If you have a child, you went from claiming $2,000 to getting a $2,200 credit. And that's a refundable credit at least up to $1,700. Does that incentivize people to have a whole bunch of kids? Like, what's to stop someone, hypothetically speaking, from having 10 kids? And now just claiming is there a limit to how many kids you can have? >> No, there's not. You can claim the child tax credit based off of how many children you have. And it's $2,200 per child. And the reason why I like this is because we have seen less people having children here in the United States. And I think Trump has made that um very known as his uh presidential campaign in uh insinuated that he wanted to change tax tax rates for the child tax credit. when he increased the child tax credit to 2200, he also came out and said, "We need to have more children." He said that. What that means to me is is that people that are in the lower to middle income will be receiving more refundable money, which in return makes them want to have more children. >> So, who benefits the most from this bill on a high level? >> The wealthy. Absolutely. There's there's no way around it. The wealthy will benefit the most from the big, beautiful bill. Well, let's talk about one of the most popular ones, which is the no tax on tips. Could you explain this? >> Yeah, so we were going back and forth around are we going to have no taxes on tips? Are we going to have no taxes on over overtime? And what we settled on is we get to deduct up to $25,000 of tips. So, if you're receiving tipped income, like a lot of people do here in uh Las Vegas, you get to deduct up to $25,000 on your federal tax return, not on your state tax return, and it doesn't include payroll taxes, but that's a $25,000 deduction. The only issue is it's only if your adjusted gross income is $150,000 or less. It phases out after that $150,000 if you're single, 300,000 if you're married filing joint. But when you look around the United States, I don't know if you guys have seen this, we have entered into a tip culture. I mean, every time I go to the gas station, every time I go grab a smoothie, somebody's asking me to tip 10, 15, 20%. America and its taxpayers live off of tipped income. This is a huge benefit to them. Being able to deduct the money that you're earning in tips is very, very awesome. And that includes credit card transactions, right? >> It does include credit card transactions as well. >> And is there any way for let's say Jack to structure his income as a tip? I'm just >> I like how do I structure >> Yeah. Netswuite and Oracle the sponsors of this podcast. If you could just send it to me as a tip, you know, like I could invoice you and then have like a 10, 15, 20%, you know, at the bottom, that would actually >> Yeah, I know it has to be voluntary, but who's to say it's not a voluntary? Can I tip myself? Can Jack tip me? >> Can I tip Jack? How does this work? >> I believe a tip comes directly from a consumer that's buying your product or service. And it would be very difficult to tip yourself. And I don't think that's the intention of how the code was written. However, the ability for you to be able to deduct that $25,000, it's based off of you earning revenue, reporting the revenue, and then getting a deduction based off of what you reported. So, it's not that you're not reporting the tipped income. It's just that they're giving you a deduction for the tipped income. It's not that it's not taxed. You're still going to pay taxes on it. You just get to take a deduction for the tipped income that you receive. And this also includes overtime pay. >> So if you're receiving overtime pay, you get to deduct $12,500 of overtime pay if you're single, 25,000 if you're a married filing joint. >> So I saw a study on this recently that 8% of hourly workers get overtime and it was only 4% of salaried workers get overtime. So the vast majority of people, more than 90%, this doesn't apply to them. >> That's correct. Yes. Salary. It seems like a big promise or a big headline to be like, "Yeah, no taxes on overtime." But when you really get down to it, it's like so few people uh will apply for that. And then of that, it's capped pretty low based on the overtime. And then it also expires in 2028 is my understanding. Incentivize more people to work longer hours though. >> Do you think it's actually going to? I think for a small percentage of people really intuitively intuitively I don't think like a large swath of people will be like I I'll work overtime now because I'm not you know I had the deduction but I do think it will make a small thing what's the benefit for the employer because my understanding is a lot of employers will will really like want you to stop working once you once you get to that overtime pay like they'd rather just bring someone else on at that point to take over the hours. >> This is the part that I I was really looking for. It doesn't really position it well for the employer. It really positions it well for the employee. The employer is still going to have to pay the payroll taxes and still report it. So, you're still going to pay the wages and the payroll taxes on the overtime pay. The benefit though is that you're retaining key employees because your key employees that are working overtime are also benefiting from the fact that they get to deduct a percentage of their overtime pay, 12,500 if they're single. >> Yeah. Yeah, but they could do that anywhere, like wherever they work. If they're going to work overtime, they might make more just getting a higher paying job, working for their competitor, and getting another offer. >> But it's another way to build wealth if I'm able to deduct the overtime pay against my federal income because now I'm increasing the amount of amount of money that I get back in the form of a refund. >> So, is there any way that Jack could pay could pay himself overtime? >> There you there's an income limit, correct? >> Yes. If you um have over $150,000 adjusted gross income, it starts to phase out. That's correct. you don't you no longer get to deduct um overtime pay. But what you could do is position yourself to have a salary and then uh give yourself a percentage as a Yeah, >> there's always some giving yourself a salary and then work overtime and then you're clocking in and clocking out. Yeah, absolutely. >> But let's say you're doing that, but then you're getting a distribution from an then it then it phases out anyway, right? You couldn't do that. >> That's correct. Because that counts as income. Who stands to lose the most from the big beautiful bill? >> The the low to middle income class. And when I say low to middle income class, I'm talking extremely low income. I'm talking $45,000 and less. They may actually see an increase in how much they pay in taxes. But you have to realize a lot of these people that are are extremely low income are relying on various different tax credits like the um earned income credit or the American opportunity tax credit. tax credits that were essentially set up for people that are extremely low income. Trump is trying to get the lower income people off of any type of government subsidies or any type of government um credits. And so the people that are going to benefit the most are people in the middle class that are right over that 50,000 all the way up to millions. And then the people that are going to benefit the less are people that are making right under 48,000. So my understanding is a lot of those like social welfare programs were getting cut like Medicare, there's a lot of money that's being cut out of that and that's why it's affecting although everyone's brackets are going down and the percentages are going down. Uh the people that do rely on those those welfare programs, they're going to lose a lot of that funding. So technically speaking, like they're getting helped in this way, but hurt disproportionately in this way. So the net is that they're being >> But you know what? But that's assuming they don't comply with work requirements and check-ins. That's my understanding is that with a lot of these cuts, there are requirements of now having to work a certain amount of hours or a certain amount of check-ins >> that is being applied to receive those benefits. So, if they comply with that, their benefits aren't going down. I could be mistaken. I don't know if you know more on this than I do. That's my understanding on it. >> It's not a whole lot of details yet coming out to light in the big beautiful bill that I've read on that on that case. But I would I would determine that if I'm an employer, I would want to track absolutely everything. Why wouldn't I? I wouldn't want to overpay. So, I would I would want to see more information around that. So, we've talked to countless entrepreneurs on this show, but one thing we haven't really covered is how do you actually get started? Like, where do you even go? How do you actually set up an LLC? What's the first step? Well, if you're asking yourself those questions, I have great news for you because we've actually partnered with Busy to sponsor this episode and I've actually used them myself and I got to say it was incredible. Setting up my LLC took less than 10 minutes. And I got to say, like the best thing was just knowing everything was getting done properly and professionally, and I was honestly just so shocked at how easy it was. Busy has helped over a million people start their businesses. And they make the entire process super simple. There's no confusing paperwork. There's no legal jargon. You just fill out a short form and they handle all the rest. Plus, they include your first year of registered agent service for free, which other companies charge up to $250 for. And the best part is there are no hidden fees or surprise subscriptions. So what you see is what you pay, plain and simple. So if you guys are finally ready to start that business idea you've been sitting on, check out busy.com/ic. That is biz.com/ic. I use them myself and honestly it was so so easy. If you guys want to start a business, do it with Bizzy. There's also a link down below in the description. You could just click it there. Thank you so much to Bizzy for sponsoring this episode. The other big one I'm really excited about is the $40,000 salt cap deduction. >> Oh man, >> that's a huge one for a lot of people in high income tax states. California, New Jersey, New York. >> Yes. >> Saving a lot of money. >> Yeah, it is. Because most people that live in high tax states, we pay a bunch in property taxes, but we also pay a bunch in state taxes. Salt allows for you to deduct state and local tax. So if you live in a city like New York, you pay a local tax to live in Manhattan and then you pay a state tax to live in the state of New York. You could pay upwards to 13 almost 14% if you're living in the city of Manhattan and in the state of New York, right? What if you could deduct your property taxes and your state taxes? Well, before this big beautiful bill, you only used to be able to deduct $10,000. Think about how many people were paying so much in property taxes that weren't able to write that off. Just with this small little increase to 40,000, you have now California taxpayers and New York taxpayers and all alike being able to deduct their property taxes and their state taxes, reducing their overall taxable income, >> phasing out at $500,000 a year. >> Phasing out at $500,000 a year. >> So you're saying you're you're taxed state and locally first and then that amount is deducted from your federal tax. >> That's correct. So if you're living in the state of California, you're going to pay into state taxes and file a state tax return. >> But it doesn't really help out people living in Nevada. It does not state property taxes because it allow for you to deduct your property taxes. Instead of 10,000, you now get to deduct up to $40,000 in property taxes. So, it does help out homeowners. >> What are the arguments for and against this? I see some people, and I've mentioned this in my video, really against it that they say that they shouldn't be subsidizing states like California because it it's taking federal income tax away. When California wants to mismanage or spend a lot of money, they get the deductions that doesn't go to the federal level. What What are your thoughts on that? >> I like it. And the reason I like it is because we saw what it was like as tax professionals prior to Trump coming into office in 2017. I looked at tax returns where I saw California homeowners writing off $100,000 in property taxes and state taxes, $200,000 in property tax and state taxes. In 2017, when the Tax Cuts and Jobs Act got passed, I saw people write in checks for the very first time. I saw people stop taking vacations. I saw people stop investing so much money because their homes were viewed as less of an asset now because it didn't provide as much tax savings anymore. So, if you're asking me how can we really help the nation, I love the idea of being able to increase it a small amount to $40,000. Still allows for people to live in those high income states and benefit some. Um, and in return for those of us that, you know, still have to pay property taxes because I know that property taxes suck. Even though you pay off your home, you still have to pay property taxes. I want to be able to deduct more of that then. >> Now, on the salt cap though, why aren't more people doing the salt cap workound? >> What do you mean? >> Explain that. >> When you say the salt workound, >> what do you mean by that? >> It's where you're able to deduct 100% of the state and local taxes uh through an LLC or an escorp. >> Oh, it's a business property. You're talking about if it's a business property. >> No. What do you mean? >> Not if it's a business property. If >> if you are self-employed in a state like California and you're paid through an S corporation, S corporation can pay your estate taxes for you and that credit. >> Yeah. Yeah. You're talking that that applies in certain states. That applies in certain states. Not all states apply that. Is that what you're talking about? The AB150 law where I can pay my state taxes upfront and get a credit on the state side when I go to file my tax return. >> I thought over 30 states have issued guidance on that and the IRS has approved those strategies. >> I love that. Well, >> prior to this year, there's only 11 states that were offering that. Um, so if they increase >> I thought it was I thought it was 30. No, it was only 11 states that were offering that. I mean, New Jersey was one of them. California was the biggest, obviously. And it's called the AB150 law. So, just to explain this to everybody, if I'm an LLC or an S corporation owner, I have a flow through entity, I can choose to pay my state taxes upfront this year in 2025 and get a federal tax deduction based off the amount of state taxes that I estimated that I needed to pay. And then when I go to file my state tax returns come 2026, I'll get a tax credit relative to the amount that I paid in 2025, which I deducted on my federal tax returns. What this does is allows for taxpayers that live in high income tax states to be able to reduce their amount of taxable income because they're paying such high taxes in high tax states, but simultaneously get a credit so they don't have to write a check in when they file their tax return. So, if someone's making a few million dollars a year through a pass through entity like that, they could essentially deduct 100% of their California state taxes by doing that. >> Yes, they can. Yes, they can. And you need to make sure that if you want to deduct it, that you pay the state taxes in the year in which you claim the AB150 deduction. The election to claim the one AB150 deduction in the state of California, I believe, is June 15th. If you did not make that election, you missed it. >> Why do so few people know about that? Cuz most CPAs spend a lot of their time traditionally filing tax returns and then when they get past tax season they go on vacations and they come back and then they file extensions and then they enter into tax season again. Most CPAs don't have the time to educate taxpayers on how to leverage the tax code because they're focused on filing tax returns. That's how a traditional firm is set up. If you think about how a CPA makes their money, they want as many clients as they possibly can to file returns for with as little communications as possible so they can get that work product delivered. So, if they're taking time away from filing returns to educate taxpayers and to do consulting and to formulate strategies, it shifts their business model entirely. >> So, tell us also about this Trump account that people have been talking about. >> This is pretty cool. Trump decided that he is going to come out with a Trump account giving children a 1,000 um from the moment they're born um funded by the government. And if you just don't touch this account, by the time you're 59 and a half, you should have somewhere close to a million, if not more, in the account just off of $1,000. At least that's what analysts are saying. Now, can your parents contribute to that account? Absolutely. You could put $5,000 in every single year for your child. That's $6,000 growing taxfree for your children. But now here's the counter to that. My understanding is that you had to cash out of it by like 30 something. >> There's a threshold on that. >> I believe there was a threshold >> when I was doing research on it. I believe there was a threshold where if you didn't spend it on qualifying expenses, which could be starting a business, first-time home purchase, uh or education, it cashed out at a certain level. >> Okay? >> Uh and that would cashed out as ordinary income instead of long-term capital gains. And so my argument, and I could be mistaken because there were there were so many changes that went from the House to the Senate. >> Yeah. >> Uh my understanding is that it's better for parents just to make a taxable account for their kids >> and contribute to that on their behalf because they're going to be in a 0% tax bracket anyway for long-term capital gains. So instead of the Trump account's worse because then they're going to be paying taxes on that. Correct. versus if they are 16 years old and they cash out like 50,000 bucks in long-term, they're going to pay nothing anyway. >> They should open a Roth IRA for their children and just put money into a Roth IRA. Put $6,000 away for your children every single year. >> That's what put them on payroll in some way. Pay them something. Pay them for doing chores. >> If you put them if you put your child on payroll, you can pay your child up to $15,750 without your child needing to file a tax return. That's a $15,750 deduction. Then from the 15,750 you could take 6,000 of it and stuff it into the Roth IRA money that neither you or the parent paid taxes on and that money is growing taxree. That should absolutely be the mission for for families. >> Here's another one that a lot of people are looking forward to. The $10,000 write off for automobiles. >> Yeah. Yeah. You get to deduct the interest on um the loan for an automobile. I think this is pretty awesome because taxpayers in the United States have, you know, been kind of screwed out of some of the auto deductions. And so now if we have a loan on a car, we get to deduct it as long as it's a personal vehicle. If it's a business vehicle, you're already being able to deduct your interest and uh payments, >> which makes sense because if you could deduct uh mortgage interest up to the first 750, it would make sense that you could deduct auto interest to the first whatever. >> Absolutely. I'm super glad that they brought this. This was Trump wanting to, you know, incentivize taxpayers to get into more automobiles. What he also did was he repealed the EV mandate as well. That's something that I know is a big topic that Elon is probably a little bit upset about. Um, but we no longer get tax credits for investing money into green energy automobiles. If I buy a Tesla, I used to be able to get almost a $7,500 credit. If I applied for it on time, that credit's disappearing. And if I used to if I put solar on my home, I used to be able to get a tax credit up to 30% of my expense. I no longer get that tax credit after 2026 or after 2025. So EV and renewable energy tax credits are absolutely going away. >> Yeah, that one I'm I'm mixed about in terms of my feelings because on the one hand, I think why on earth should they subsidize all of these EV products and basically just give you free money. I mean, they're they're artificially driving up prices and demand for these products just by throwing money at it by saying like, "Hey, if you buy this, we're going to pay you to go and buy that." I think that's healthy. But on the other side, I I do see it as a good thing to to sometimes you have to push people towards something that might be better in the long run. Yeah. Like driving a Tesla and, you know, less reliance on fossil fuels and gasoline. And >> I feel like Trump is on the side of the fence of he doesn't know whether or not EV and renewable energy is if going green is actually helping the United States. I don't think he feels like buying a Tesla or, you know, us leaving those used batteries in a junkyard is actually helping the United States. He doesn't have the data yet to determine is this helping us or not. So instead of making everybody by 2030 to have an electric vehicle, I want you to be able to have a choice. If you want to drive electric, drive electric. If you want to drive a regular gas car, drive a regular gas car. And so him and Musk having this feud is actually kind of weird because it's always been his initiative from the onset to do this. >> One of the biggest things out of this this bill is bonus depreciation. Who stands to gain the most and who stands to lose the most for this being extended? >> Explain that for people who have no idea what bonus depreciation is. >> Yeah, so bonus depreciation allows for you to take a year 1 deduction or write off on a qualified piece of equipment or a vehicle. We see a lot of business owners utilizing bonus depreciation when they buy vehicles that weigh over 6,000 lb or the gross vehicle weight ratio weighs over 6,000 lb. So self-employed business owners stand to gain the most out of bonus depreciation being back at 100%. And it's permanent this time. We don't have to worry about it going to 80, 60, 40, 20. That's that game is completely over. You go into Mercedes and you want to buy a G Wagon, you can put your $10,000 down payment down and that vehicle is 100% business use and it's being used 100% business. you're writing off that car whether it's $100,000 or $200,000 even though you financed it. That's very awesome for business owners. They get to leverage debt to take tax deductions. But in the real estate space, we also get to utilize this in the form of cost segregation studies. So, if you're a real estate professional or if you're running a short-term rental, you can perform a cost segregation study, create this massive paper loss, and hopefully you'll be able to use that paper loss to offset W2 or 1099 income. I was just thinking about your house, Jack. you could bonus depreciate that uh warehouse. >> Yes, we did say that if you're buying a house, Jack, you could look at what's called the self- rental strategy. So, you're self-employed. I'm assuming you have an LLC or an S corporation. If you buy this new facility and you use it for content, as long as you own the new facility 100% yourself and you own your LLC or S corporation 100% yourself, you can make a grouping election to group in this activity of you running a studio. So, it's an active business that you'd be running a studio uh out of with your active LLC or S corporation that you're doing content media with. Now, you can use the losses from a cost segregation study of a house that you purchase for content studio, warehouse, etc., etc. to offset the active forms of income that you're earning from your S corporation. This does not require you to spend 750 hours. Does not require you to manage the property for 100 hours. Why? Because you're already active and materially participated inside of your S corporation. So I can accelerated depreciation something that I like a warehouse that is on my that is that's what I was trying to say. I didn't know if that was possible because I didn't know if I had to like qualify as a real estate professional to that because it's a piece of real estate, >> right? I'll be honest with you. I don't think I've ever talked about that tax strategy on Instagram or Facebook or YouTube before. >> It's the biggest one for real estate investors. >> I normally keep the self- rental strategy like with my clients for sure. >> Okay. So all right. So I maybe we have a little I want to show you the property. We could have a little conversation. >> Well, now that you're talking about it, >> break that down a little bit further. >> How could I utilize this? >> Mhm. Yeah. >> Let's just say I'm making YouTube videos all day. >> Yeah. >> What do I do? >> Okay. So, if I'm making YouTube videos all day, I could take a home office deduction or I can choose to go have a studio space, right? I could rent a studio space or I could buy a studio space. If I'm buying a studio space, I'm going to be running an active business inside of that studio space. It's not like I'm I'm renting out to another tenant. I'm renting out to my active business. So what I do is I create a grouping election called a -4 grouping election for under code section 469-4. You can make a grouping election with an active property that you own and an active business. The deduction comes when you decide to perform the cost segregation study. All that a cost segregation study is saying is that I'm just going to separate the cost of the structural and non-structural and write off the non-structural in a quicker amount of time. When that loss shows up on the tax return, it's considered a non-passive loss. Same thing with your S-corporation income. That's non-p passive income. So, it flows through to offset your K1 income on your individual tax return. >> But I could do that anyway regardless of who I rent the property to. So, if I'm buying a warehouse and I move in and I pay myself 10,000 a month, Yes. >> I'm getting the same write off as though I just rented it to a tenant at 10,000 a month. So, either way, I'm getting the same write off, >> but this one I'm just moving in and paying myself rent. >> Correct. Do we like that one? >> Sure. >> I love that strategy, too. >> My My only thing is that it doesn't matter who you rent it to, which could be a plus or a minus. >> Well, if I'm renting it to another party, the IRS says that, "Okay, so now that this property is passive in nature, show me that it's active. The only way you can show me it's active is if you're running a short-term rental strategy where the tenant is staying in the property for 7 days or less and you're managing it 100 hours and no one manages the property more than you, or you qualify as a real estate professional. So, if you don't qualify as a real estate professional, you're not running the shortterm rental strategy, then your only other option is a self- rental, which means you have to rent it back to yourself. And in order for you to make that election, you have to group that LLC in with your S corporation on the tax return. >> Okay. But then what you're saying is that let's just say I get bonus depreciation and that's $500,000 upfront. >> Yes. >> If I rented to a tenant, >> Yes. >> they would pay $120,000 a year. >> Okay. And so that means I'd get four years basically of a tax write off with a tenant. Or if I moved in and I pay myself, I could get that whole $500,000 write up because I'm renting it myself. >> It's an active part of the business. So that's the benefit is I claim 100% year one versus spreading it across my rental income from the property over a few years. Well, if you if you're doing a cost irrigation study, you're not going to take all of the depreciation year 1. You're only just going to take that structural part as year 1 deduction or sorry, non-structural part as year one deduction. All the structural part still remains in that 27 1/2 or 39 year. I would say 60% of all real estate is typically structural. So, you're not going to be able to accelerate to that. But about 40% is nonstructural of which you can claim as a year 1 write off with bonus depreciation. And so if I have a million dollar building, I could be looking almost at $400,000 in a year 1 deduction. >> Hypothetically. >> Hypothetically, >> what happens if Jack is it gets married, he's an owner user, he takes it back, the iced coffee hour, moves somewhere else, and now him and his wife get that $500,000 capital gain exclusion. >> Does Does any of that apply to offset his depreciation? >> No. The capital gain exclusion does not count towards depreciation. It only counts towards the gain. Depreciation is not considered capital gain. It's considered ordinary income. When you sell a property, the depreciation will come back as ordinary income taxes. You'll pay your ordinary income tax rates on it. So, this is why I love doing the 1031 exchange. If we can find a property within um you know 180 days that you can roll your capital gains into. You essentially won't pay any taxes, but it has to be equal or greater in value than the property that you sold. >> But you can turn it into a long-term rental and then still Yeah. >> Absolutely. Then you can turn it into a long-term rental. What I like to tell a lot of people is why not leverage the short-term rental strategy just for this year and then convert the property into a long-term rental. >> That's what I would Yeah. >> Yeah. Cuz you only have to manage the property for 100 hours and just make sure that you're managing it more than your cleaning lady or your handyman. And if your tenants are saying 7 days or less, you can just run a short-term rental for the last two to three months of the year and then just convert it to a long-term rental come January. IRS has no issue with that. Just put a long-term tenant in there. That's what my wife and I have no issues with that. That's what my wife and I did on our first short-term rental back in 2022. >> Yeah. We got $167,000 in year one depreciation on a $680,000 property in uh Deerville Beach, Florida. After that first year, she converted into a long-term rental and then she qualified herself as a real estate professional. >> So, she basically just paid 15% less for a long-term rental property. >> Yeah. >> It seems weird though to go from bonus depreciation to then seniors get a $6,000 standard deduction increase. It it it seems minuscule compared to like all the other things that like wealthy people can get from this. >> Yeah, the $31,500 standard deduction is pretty high in my opinion just because I've been in tax so long. When I got into tax, >> the standard deduction was literally $6,000 for single filers and 12,000 for married filing joint. I'm 32 years old and the standard deduction is now $31,500 for married filing joint and $15,750 for single powers. Literally, if you just make a $100,000 a year, you're getting a $15,750 deduction if you're single just by being a taxpayer. That's pretty awesome. And then you put money into your 401k, you're dropping your tax bill possibly down to like $60,000. So, I think that it helps the everyday taxpayer for sure. But what we're really looking at is what are the big changes in this tax bill? And the big changes are the ones that are really helping the wealthy people, business owners and real estate investors. They're going to benefit the most. Now, at this point, you might be asking yourself, what makes a leader stand out? Because it's not just about taking charge, but about setting new standards and embracing bold moves. That's why if you lead by example and live with passion, then our sponsor, the Range Rover Sport, is made for you. Every model of the Range Rover Sport offers a unique blend of dynamic sophistication and sporting luxury. It's where refined elegance meets visceral power. With focused on-road performance and worldrenowned off-road capability, this vehicle rises to every occasion. 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As the low to middle class just do the same things over and over again. They make money, pay their taxes, and just go on vacations. They never try to figure out ways to save, reinvest, or utilize the government system to their advantage. People like you and I are going to figure out ways inside of the tax code to build our wealth. But what the issue is is low to middle class tend to focus on how they consume consume their their wealth. If we can figure out ways to preserve our wealth by utilizing the tax code, we can help more individuals that are in that low to middle class get into that higher wealth and into the wealthy class. >> So if you're making $150,000 a year, W2, what resources do you have at your disposal to lower your income? Oh, absolutely. So, if you're W2, the obvious one is going to be to max out your 401k, but then we need to start looking at whether or not you actually feel that you have it in your wheelhouse to have a business on the tax return so you can convert some of those everyday expenses that you're spending your money on, cell phone, car, gas, etc. into write-offs because at the end of the day, we are all spending money on the same things. We all need a roof over our head. We all need a car to drive. We all need a cell phone to communicate with people. The issue is that W2 taxpayers can't write any of that off. But as soon as you have a business on the tax returns, those everyday expenses become business write-offs for you every single year. As long as your business is a legitimate business and you're in the pursuit of income with your expenses. So if you're asking me what is the average W2 employee, what can they write off? Absolutely nothing. You're putting money into a 401k. You're hoping that you have a home so you can write off your property taxes or mortgage interest or you're giving money away to charity or you have a child that you can claim a child tax credit for. The government has not set up the system for you. The government has set up the system for business owners and investors. They understand that you take no risk when you're a W2 employee. The business owner took all the risk when they decided to hire you. If you decide to show up to work and you don't want to put in uh 100% effort, you're still going to get paid 100% of your paycheck. That's part of being a W2. So, yes, the government understands that, which is why the government creates more incentives for those that take more risk. What's the bare minimum that you have to get from a business in order to qualify? Like you obviously can't just create an LLC and then just like deduct things and show zero income. Like how long? >> Technically technically you can two years. And then this is the threshold. If if you're not showing an economic gain by year three, they can go back in over those last couple of years and treat those last couple years as hobby businesses. Make you refile the tax returns without that business income and then you pay the taxes on what you would have paid. So that's an issue. So if you're not showing any income, that's a big red flag to the IRS. We have a lot of um you know random you know taxpayers that come over to us that had these returns from previous years with these schedule C's that had 40 $50,000 in losses but no income on the tax returns. They stick out like a sore thumb to the IRS because you're essentially saying I'm just writing stuff off and haven't figured out what I'm doing yet. IRS only allow you to do that for 2 years. You need to show the IRS that you're trying to make an economic gain or they're going to come in and say you started a hobby that's not a legitimate business which means those expenses aren't legitimate. take them off of your return and refile. >> Who's to say you can't pay yourself through the business? Like, let's say I'm W2, but then I take $10,000 of my own money and buy my own product through my LLC to show income. I mean, it seems like there's there's always like a like a workaround, you Well, if you're buying your own product, how do you how do you turn around and then benefit from that if you're spending money already then write it off and show the expense that like, hey, I got a $10,000 sale. >> Yeah, but it's with income that's already taxable cuz you're W2. So, you already pay taxes on that income. >> Yeah, but you're deducting it anyway because your expenses are going to equal what you just brought in. >> But if you're going to go put money into a business to go grow a business, that is how most business businesses start. If you're going to put money in to then buy your own products and then just be able to deduct your your car and your home office, how long are you going to be able to keep this up before the IRS says you're not still showing an economic gain? Because the only way you benefit is that if you're at a loss, the loss is what offsets your other forms of income. If I'm making $150,000 W2 and I go start a business, that business performing at a loss offsets my W2 income, which increases the amount of money I receive back in a refund. If I start a business and that business is profitable, all I just did was just increase the amount of taxes I pay. >> But now, who's to say you're not just a bad business guy? Like, you're just starting a business, two years, it fails. You tried something else, two years, it fails. Two years it fails. There's someone out there who's just tried thing after thing after thing, and it's just they've all failed for 10 years. How do you separate that person from the other one who's just trying to get write offs? >> Yeah. I mean, IRS are human beings, right? So they they understand what intent looks like and what someone showing intent looks like. Having a website, having legitimate expenses, having legitimate receipts to show uh a social media account, products and services that they're trying to market, you could just be bad at business. But what most people do is they just try to get over on the IRS. They claim these expenses. When the IRS asks questions about them, they don't have anything to provide. Uh I don't have a receipt. I can't actually formally tell you the intent of why I decided to spend money on this and then they end up going down this route of wanting to repeal some of those deductions they put on their tax returns because they don't want to be on the hook with the IRS and have the IRS scrutinizing them. >> What's it like to get audited? Like, do they just send you an email and then they send an agent to go to your house and the guy shows up your house knocks and he's like, "Hey, what's up with this transaction right here?" It's never an email, man. >> No one No one will show up to your house and it's never an email. It's always letters, which sucks because the IRS will send you a letter and by the time you actually open the letter, the date might have been passed. >> That's happened to me so many times. I just don't check the mail for a week and then it's like by this date and it was yesterday. >> Yes. And it'll tell you you should have responded by like November 21st and it's like December 16th. You're like, "Okay, what the heck?" So, the issue with audits happen when you don't respond to notices in a timely manner. Then you come off of the computer conveyor belt and then a human now is being assigned to you. You get a revenue officer and the revenue officer is just going to ask questions first before the audit actually gets conducted. Before an audit happens, typically it's normally just notices requesting additional information. Hey, we need additional information. What is this? What is that? If you don't provide that additional information in time, that's when we typically see audits happen. I want to open up a formal investigation against you because I believe you wrongfully filed a tax return and I'm going to get to the bottom of it. And with IRS audits, they typically take 9 to 12 months to resolve because it's a lot of back and forth with revenue officers. You're waiting for the IRS to respond and work through things. As tax pros, you're providing things and then there's a whole communication battle with the IRS calling, waiting on the phone for them to answer, waiting for them to call you back, finally getting connected, finally having a conversation and establishing follow-up meetings until everything gets resolved. >> What are the red flags that establish an audit that get you caught? >> Yes. Um, under reporting income. When you are a 1099 individual, you are receiving typically 1099s, which means someone has reported how much they have paid you. If you forget to submit a 1099, you are under reportporting income. That is one of the number one ways people get audited. Mistakes and omissions is the second way people get audited. If you make a mistake on the return, you filed a return and you labeled someone's social security wrong. Uh forgot um someone's birthday. These are things that can actually trigger an IRS audit, even though it sounds so simple. Or you leave something off a return or they see a category on a return that looks suspicious. You have exactly $25,000 in vehicle expenses, exactly $7,000 in marketing expenses, not $7,01, not $25,452. Things are all round numbers that typically justifies an IRS. >> Is it a computer that does this or is there ever a person who's like manually going through? It seems like everything is just like a computer algorithm that's like spitting out things. >> When you're an LLC or an S corporation, you have an NICS code attached to your entity. The IRS processes tax returns by state relative to the code associated to your entity. So, if I decide to be a real estate agent, I can set up an LLC underneath the real estate agent code. If I decide to be a consultant, I can set up an LLC underneath the consulting code. They're getting thousands, if not millions of tax returns reporting the same type of code as you. So, they have a rule of thumb based off of all the other returns that they're receiving. On average, consultants in California make $2 million a year. Let's just say this as a as a flat example. And of that 2 million, they have this much net profit that they normally receive that we see on tax returns. But in these categories, 1 2 3 4 5 6 on the return. Here's the average amount of expenses that we see. If they fall out of that, boom, the system flags it, pushes it over. Now, a human possibly could be reviewing that return. The human has questions, a notice might go out. You don't respond to the notice, you get an audit. And that's typically how I see audits happening. And in terms of just strict numbers and risk in in audit likelihood, if you're making like $150,000 a year and you're writing off $80,000, $100,000 even like so your net profit's $50,000, your likelihood, I'm guessing, is a whole lot lower than someone writing off 75% of their income if they're making $3 million a year. >> You if you are making less than $100,000, less than $500,000, your audit risk is less than 1%. If you're making a million to 3 million, your audit risk jumps up to 1.2%. And if you're making over 10 million, your audit risk jumps up to 2.6%. IRS releases this every single year. >> Seems pretty low. I've seen the audit rates from like you see in the '9s when it's like a 10 plus% audit rate on incomes over 10 million and that's gone down to like like you said two something%. >> Yes, it is. It has gone down. Audits have gone down significantly and Trump has repealed um the funding for the IRS. I know you guys remember when Biden came into the office, there was going to be um you know, a whole initiative to hire 83 86,000 new IRS agents. Those agents did not get hired. I'll let you guys know that. I talked to the IRS every single week. They let me know we're seeing people leave 24/7. And on top of that, Trump has paused funding for the IRS as a part of the Big Beautiful Bill. So, we're going to see less audits happen over the next four years and less IRS agents. >> I heard a a a theory. This was like 10 years ago that someone told me when I was doing real estate that if you filed an extension and then you submitted a paper return >> Mhm. >> the likelihood of an audit goes down significantly because there's a delay on top of it and then the paper audit takes them longer to process. And because they have three years to complete an audit from when you turn it in and because it takes them often a year to go through that audit, the clock starts ticking way faster. They're behind and they don't think they could complete it by that date and they're less likely to go after it. >> That's correct. If you >> How do people find this stuff out? >> If you would like to reduce your audit risk, especially if you're a self-employed individual, I'd highly recommend that you go on extension because I want to go in with the masses of other business owners. Business owners and real estate investors almost can never file their tax returns by April 15th because they're typically always waiting on K1s and they're waiting for their booking keeping in accounting to get adjusted and they're calculating estimated tax payments. So 90% of the self-employed business owners and investors that I work with are on extension. They're filing typically in the months of August or September going in with the massive amounts of other business owners. Paper filed returns do get audited less than digital returns obviously because digital it's easier for the system to to spot things, right? But if you're asking me who are the more likely people to get audited, those that file their tax returns by April 15th. As a matter of fact, people who file their tax returns by April 15 typically receive letters in the mail by May 15th. That it it happens that fast. >> So, you're almost penalized by being more diligent and like doing it sooner. >> It's funny, huh? It's crazy. >> Part of me wanted to like get that done by the April 15th, right? >> Just because it was like, oh man, now I don't have to think about it. I got like the rest of the year. >> Out of sight, out of mind. >> Yeah. Oh my gosh. Yeah, >> we had a client that got got audited for trying to write off a yacht and it was very very very difficult dealing with her because she was one of these real estate agents that um was on million-dollar listings and she had a huge following, a huge personal brand. And when she came into our office, she had already visited 10 other CPA firms. All 10 other CPA firms said they weren't going to represent her. They said they shouldn't that she shouldn't have claimed the vehicle on her tax return. When she came into our office, we didn't know what she came into the office for other than a consultation. She brought in her tax returns, slid them across the desk. I open up the returns and I see on the returns that she's making seven figures, and the very next page, I see a notice. On the notice, it said 1,100,000 uh due. IRS will let you know how much you owe them when you're getting an audit because they're going to assess you. >> I asked her, "What is the IRS assessing you?" And she said, "Well, I tried to write off a vehicle on my tax returns and they're disallowing it." And I said, "What's the vehicle?" And she said, "It's a yacht." I said, you say a yacht? She's like, "No, it's a yacht." And I said, "Okay, well, why are we claiming a yacht on your tax returns as a business vehicle?" She's like, "Well, I show my clients how to purchase real estate from the views of the ocean." Of course, any other real estate agent can pull up to a house in Laguna Beach or Dana Point and get out the car and walk the property. But I don't do that. I bring Kobe, I bring Shaq, I bring my clients onto the boat and I show them houses from the views of the ocean. and I also run broker previews on my boat where I bring other real estate agents and we conduct these broker previews. I said, "Okay, that sounds legitimate, but what's the proof that you're actually making money from this and this is an actual business vehicle?" She's like, "Well, one, here are my clients on the boat." And she pulls over her phone and shows me that. Very impressed. It's pretty cool to see those photos of Kobe and Shaq. But what was more impressive was that she showed me a log booklet that her captain has. Her captain keeps a log booklet of every single person that comes on and off of the boat in chronological order. With the log booklet that her captain had, photos, receipts of her purchasing the vehicle, and the transactions that occurred from her being a realtor that year, we went into the audit. I used one tax code in that audit, code section 162A, that states a business owner can take a business deduction if the deduction is ordinary in nature to the business owner, necessary in nature to the business owner, and reasonable in nature to the business owner in the pursuit of income. Slid this over to the IRS auditor. It was in our office, by the way. The audit happened in our office. The auditor said, "She knows Kovi. Wow, this is so cool." The audit was over in 5 minutes and we were talking about the Lakers. That day changed everything for me. You can't tell me what's not possible with the tax code because there's people showing me what's possible every single day. >> How much of that though is you're just you went in there, you're just a charming guy. >> I am a me and my mom went in there. She Yeah, >> she did a little bit of the heavy lifting. The cool thing about this audit was that the IRS auditor wasn't trying to, you know, win against her. He was just trying to figure out is what she doing actually legitimate or not. And that's how really the IRS works. They they don't want you to to lose. They want you to win, but they want to make sure you're not a criminal. That's what they care about. Are you doing something legitimate or you not doing something legitimate? Show me that you're doing something legitimate. Show me that you're making business income from this. And show me that everything ties to the business income that you made. >> That's what we have to do. >> Where do you draw the line between that boat and let's just say a nice watch. Yeah. >> And you say, "Hey, I'm with clients. I have this watch. It's a talking piece. It sets me apart. I'm doing business from that watch. It helps me get into these social circles. >> Where do you draw the line on this?" or or a really nice car that you know maybe you drive on Sundays but when you pull up to an open house that car gets attention sets you apart. >> Yeah. It's different with it's different with buying a Rolex than it is with buying a car. When it comes to cars the government wants to know exactly the percentage of business use that that car is being utilized inside your business which makes it pretty hard for business owners to kind of know, okay, am I going to the grocery store today or am I just going straight to the office today? But what I encourage business owners to do is look at this calendar, right? You have seven days in the week. How many of those days are you actually doing business? And how many of those days are personal? And we can typically tell that most business owners are working Monday through Friday, utilizing their vehicle for business. And then on weekends, that vehicle is probably going to be personal. So most business owners are using their vehicle about 80% of the time for business and about 20% of the time for personal. It's not to say that certain business owners can't utilize it more or utilize it less, but that's just what the average we see. So, when it comes to writing off a vehicle, the IRS wants to know your your percent of business usage. When it comes to writing off a Rolex, it is very hard to write off watches. Unless you're in the watch industry and that is your business, you're essentially trying to label a watch as marketing or tools or equipment. It's very hard to justify that your watch is a tool or equipment that's actually helping you make money when you're not in the watch business. You might be a consultant. You might be a realtor. Sure, does it help your appearance? Sure does it help you from a credibility standpoint, but it's considered a extravagant expense and an expense that might not not be directly related to what your business is. >> How granular do they get with their questions? Like if I go out to dinner with Graham and maybe during this dinner we're just talking about dating or something. >> Yeah. >> Will they just ask like, "Well, what' you talk about?" >> Like will they ask if I So they just be like, "Oh, who'd you go to dinner with?" I'm like, "Graham, they're like reasonable." >> Yes. >> Oh. And what's the average like personality profile of an auditor? I'm curious if they're like really straight and narrow like that type of person or if they're cutthroat or if they're kind of just like a normal charismatic, you know, guy. Most IRS auditors are not CPAs or tax professionals. So they're essentially people who have studied a way in which to win against people. So most auditors are a little hostile sometimes, >> similar to cops, maybe. >> Yeah, they're a little bit hostile. They'll they'll hit you. They'll they'll try to get you to make a mistake in what you say. So, they'll let you talk and talk yourself right into incriminating yourself because when it comes to the IRS, you're guilty until proven innocent. You're not innocent until proven guilty. If they send you a notice, they're saying you owe us. It's not, oh, send us back some information. We're unsure about this. No, no, no. We don't think you should have taken this. Prove to us that you should that you're able to take it. And when you're in an audit, they kind of press you on these things. Why did you take this deduction? Explain to us why this is considered an ordinary expense for your business. Explain to us why this would be necessary for you to go and spend $15,000 at Poppy Steakhouse at the Fontinlau um on popping bottles because you have business clients. Why is that considered a necessary expense for you? >> But isn't this why >> that's like I'm curious. So is it similar to like getting arrest and you're like I'm not going to talk without the presence of a lawyer? Exactly. It is because you get the thing in the the mail the audit. >> Why should you have to answer that question? >> So you immediately got to bring in a tax >> bring in a tax professional. >> Yeah. Why why are we having to justify this when my business owner is making $10 million a year or $15,000 a $15,000 a million if Font 10 blue is not even 1% of his total net profits? Why are we even justifying that? He's spending money all over the place and has paid taxes x amount of years in a row. I believe that with this business owner, we have taken the expenses legitimately and here is all of our proof of expenses by receipt, not just our profit and loss statement and our balance sheet. And this is what I want business owners to remember. When you get into an IRS audit, the auditor does not care about just your P&L and your balance sheet. They care about the receipts because the receipt tells me what you spent your money on. If you went to Home Home Home Depot today and you spent $1,000, I do not know if that $1,000 was spent for Graham Stefins's personal house or Graham Stefen's investment property. Unless I see that receipt. Sure. Do I see the expense on the P&L? Absolutely. I can see you have tools, equipment, etc. If I open it up in QuickBooks, I can see it was to Home Depot. But it doesn't tell me what the expenses were. >> But then if it says like totoilet $400, then is the the officer like, "Okay, let's go to the investment property." See this Toto toilet? >> They're they're not going to go to the investment property. They're not going to do that. >> Okay. So they're they're like, "I trust you that this Toto toilet is in the investment property as opposed to your primary." >> Well, you can show proof of it by providing substantiation. Absolutely. Photos, all of that. But the substantiation that the IRS requires is the receipt and documentation. If you provide receipt and documentation, you have done exactly what the IRS is actually. >> That's why it's so important to get a lawyer. So, I have a story from someone who got a uh California state audit and they wanted 3 years of tax returns, all these documents like every in and out from every bank account. The guy got a attorney on it. >> Y >> narrowed the scope down to one year, but a 1099 received in that year. So it went from 3 years down to one document in one year. >> Mhm. >> It turned out there was a 1099 that got missed >> and that was just a few,000. That was it. But they took it from 3 years of like pulling through everything to see what they could find to oh, it was just a $1099 that was not reported by mistake. You owe us a few,000 and that was it. That's all it came down to. >> What if he had never hired that lawyer? >> Yeah. Three years. send them over 3 years worth of information. And guess what? Here we go. We got three years worth of information. Let's just look at everything. Hey, let's pop some popcorn, sit here, and see how much stuff we can find in 2022 and then we'll jump to 2023, then we'll finally get to 2024. >> But but here's my thing. Don't they have that anyway? Like, if they really wanted to go through every year of your tax return, couldn't they already do that? >> Yeah, but they're you going through my tax returns doesn't tell you exactly what I spent my money on, >> doesn't it, though? like cuz I I write down my my you can see my expenses in categories right you can see how much I spent on consulting legal and professional fees uh meals but outside of that you can't actually dig into the categories >> unless I provide you my P&L you can't dig into how much money I I I'm actually spending in particular locations you don't know whether or not I spent $100,000 in Hawaii you just see travel expenses $200,000 for the year you don't know if I blew a hundred of that in Hawaii right so on on a family trip that I decided to take my f my family on. You don't know that information until you audit me. >> Why doesn't the IRS just tell you this is how much money you made? The >> IRS loves to play this game where they want you to guess it yourself. Um and then if you guess it wrong um then you're in trouble and >> because they know >> and Yeah. Oh, they know exactly how much you should be reporting because they're getting um wage transcripts provided to them by your employer or they're getting 1099s provided by um the contractor that you decided to partner with from a business transaction. So, if you're self-employed, absolutely your audit risk is way higher than if you're a W2 because you have the ability to control the discretion of what you report, which is why they created systems like 1099. So, you're required to fill this out before you pay somebody. So, I'm curious though when it comes to S corporations, it's not required if you pay an S corp to submit a 1099. >> Why is that? >> Cuz we're corp to corpor. We're we're both we're both corporations. We're business owners. If I'm paying a contractor though, I need to provide a contractor a 1099 that makes over $600. Yes. >> It always worries me though that when when we pay out people on the ice coffee hour, we pay to an escort. >> Yeah. You don't have the99. >> But there's no reporting on that. And and it worries me that it's like, yes, we have proof of all of this, but it would make more sense if like if we get a 1099 and they get a 1099 and then it's just clearcut this is what was paid. >> Yes. >> Wouldn't that make more sense or >> 100% provide 1099s to every person that I do business with, whether they're a corporation or not, because of documentation purposes for me. I don't want to get into a situation where I didn't make sure that I knew somebody was reporting the income that I pay them, but most importantly that I didn't document all of the contractors that I was working with. I want that to be documented correctly and filed. >> Has anyone ever walked through your door with your client work, they show you their expenses and you're just like, I'm just not going to work with you. >> Yes, that has happened. Um, we have had clients that have lied and claimed expenses that they weren't supposed to claim on the tax returns. And then they come to us thinking that we're the cool tax pros because we love to help people pay the least amount of taxes possible. That's our whole mantra. And then they get on the phone with us and they're like, "Yeah, man. I just wrote off this. I wrote off this and I wrote off my kids' education. You know, screw the IRS." And we're like, "Well, you know, it was great knowing you. Um, the IRS is definitely a real organization. They have real jail cells. Um, so we are not going to do business with you cuz I have a fiduciary responsibility to um, work on the behalf of the client and represent the IRS too. Under Circular 230, I have a fiduciary obligation to make sure my clients are reporting their income correctly um, and not taking um, or sorry, not um, trying to get around the IRS or screw the IRS over. >> And how often do you see people going to jail? >> I've never had a client go to jail. I mean, saw Wesley Snipes go to jail because of uh, um, tax fraud and tax evasion. Have you ever been audited personally? >> No, I haven't been audited personally, but I speak with the IRS pretty often. I'm I may ask the IRS just to audit me just so I can use it for content. Um, >> dude, that would be a banger video. >> Banger video. Hey guys, I'm getting audited. Let me show you guys exactly how we're going to handle this. I would love that. I mean, I would, but I wouldn't because it's a lot of work, but I would love that cuz I have so many I have so many corporations now. >> I'm curious, how do some people just get away with never paying their taxes? Because I I've seen these threads on Reddit where it's like, "Hey, my dad never has filed taxes in 30 years. He's self-employed. He's just never filed a tax return. They've never reached out. I don't know what to do." >> Yeah. >> How do people do this? How How do they slip under the radar? It makes no sense to me. >> I I have no idea, brother. There's certain people who I've heard these stories from, but then there's people who I've heard from that haven't filed tax returns in two or three years, and they're just getting letters of the wazoo. So, how does that work? Do you just never file a tax return from the very onset, or do you just decide one day, okay, I'm done filing taxes. I don't need to file tax returns anymore. That is weird to me. I know that when it when the push comes to the shove, I don't want to ever have to face 10 12 years worth of payments and penalties that I would have stacked up because I chose not to file my tax returns. That's really what it is. You may not owe on your taxes, but you still have to file your taxes. And um failure to file your taxes results in penalties and interest fees. >> What's the sketchiest thing you've ever seen anyone do with taxes? Now, fun little story here, but when Jack and I started the Ice Coffee Hour, we had to figure out everything ourselves. From the best audio equipment to use, the best cameras, how to book guests. It was a challenge. Every day was a unique experience that we had to figure out ourselves. That's why if you're starting your own business, you know just how relevant today's sponsor is. And that would be Shopify. Shopify is basically your all-in-one business partner. They power millions of businesses worldwide, from major brands like Mattel and Gym Shark to entrepreneurs just getting started. Here's a fun fact. If you've shopped online in the United States, there's a really good chance it was through Shopify because they handle about 10% of all American e-commerce. 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So start that business you've always wanted to at $1 per month with the link down below in the description or shopify.com/ic all lowercase. Thank you so much to Shopify for sponsoring this episode. What's the sketchiest thing you've ever seen anyone do with taxes? They use these like charitable LLC structures to where they set up a charitable LLC for charitable intent and transfer a uh 99% of their interest ownership to the charitable LLC and they retain 1% interest ownership of that LLC and then the funds go into the LLC but then they set up an investment LLC where you can loan money from the charitable LLC to the investment LLC and then you could take distribution bions from the investment LLC to use on HIMS, health, education, maintenance, etc. But you're essentially using that investment LLC to make additional investments. That whole charitable LLC structure to me is very fishy. I've seen so many people get audited from it and I've seen so many people abuse it. Is it a legitimate structure you can set up right now underneath the IRS tax code? Technically, it is. But is it something that I would encourage people to do? Absolutely not. because of the discretion around it and most importantly the way in which it it is structured in the eyes of the IRS. You are intentionally doing something for charitable purposes but then you're not actually being charitable from the onset and you're moving money around to make investments from a non-t taxable place. >> What's the biggest fine you've ever seen? >> $875,000 for 10 years of unfiled tax returns on an athlete that was a professional boxer. How much were How much were they making during the time? >> Lots and lots of money. They're a very famous boxer. Fought a lot of famous people. >> That doesn't seem like that much though when you think of they're probably making tens of millions. They're not making tens of millions of dollars anymore because they're not fighting professionally anymore and they're living off of their savings. And they abused their savings while they were living and chose to give a lot of their savings to friends and family who they thought were actually friends and family and wound up in a situation to where they're not holding on to as many assets anymore and now have a big bill with the IRS and are trying to do anything they possibly can just to get right by the IRS and to live a natural normal life. I have had some celebrities and clients that have found themselves in that situation. What happens if you owe a ton of money and you just don't have it? Let's just say you owe 5 million bucks, but you know what? You lived lavishly, you spent it all and you got zilch. What happens? >> All right, so if you owe the IRS and you don't have the money to pay them, you legitimately don't have the money to pay them. You have two options here. You can either get on a payment plan or you can do an offer and compromise. Now, the payment plan only works as if your tax bill is 50K or less. So, if you're making millions and you owe millions, you're in a situation here. What if you are no longer making millions, but you owe millions? This is where the offer and compromise comes in. IRS knows you probably aren't going to be able to pay them back with the income that you currently have sitting inside your savings account or the income that they can see coming in. So, if you could show that you've had a negative economic gain, you're making less money. You you're not being able to, you know, really grow your revenue. They will start to focus on creating a compromise with you. We call these OIC's, offer and compromise, where you offer the IRS a reduced amount and you compromise on that amount and hopefully you can pay that in a lump sum and be able to write away with your IRS debt. Or what they'll also allow for you to do is pay a percentage of it in a lump sum and then get the rest on a payment plan. Those are called OIC's. What's the biggest tax bill that you've helped someone completely erase? Um, we helped someone reduce a $1.9 million tax bill that they had. How advanced depreciation and income shifting strategies. I took so much depreciation on the tax return that I was able to drop their taxable income pretty low. And then I shifted income into a private family foundation, which is a philanthropic entity that allows for you to roll over 30% of your adjusted gross income for a year one tax deduction. only 5% of the assets that are sitting inside of your foundation actually have to be donated out to another third-party 501c3 that's not your own. So, we were able to utilize depreciation strategies and income shifting strategies to reduce their taxable income significantly to the point where we were able to offset close to $12 million in tax. >> Were they a real estate professional? >> Their spouse was a real estate professional. We did advanced depreciation on their rental properties. And what we also did was we parked money into movie films like we talked about IRC 181. We're able to take movie film deductions in tax credits there and then we utilized the private family foundation. But the main strategy that we utilized is the same strategy that we see Donald Trump utilizing that I'm utilizing on my tax returns, which is real estate losses. If we can convert a passive business into an active business, we can take active losses against your active forms of income. Is it ever just a good idea just to to pay what you owe >> and and that's it and not get fancy and just say, you know what, I'm just going to be simple here. I'm not going to take on anymore. Just going to pay it and I'm done. >> I think when you're 200,000, $250,000 >> and less in income. Should pay your taxes. You're not at a point yet to where it makes sense to go and try to be creative and fancy with the tax code because truthfully, you'll probably end up spending more money trying to figure it out than actually, you know, saving money. But right when you get over 300K, you're paying about 50 $55,000, $60,000 in taxes. That's about a salary for someone coming out of college. That's when it starts to make sense. And this is when I start to encourage people to start looking at tax planning. But most people will run to their CPA that only files their tax return and look for tax advice when that's not the person that really provides that tax consulting or advice. So that's when I recommend a tax strategist, someone who primarily focuses on coming up with advanced strategies to help you mitigate your tax bill. So then when you go to your CPA to file your returns, all you're doing is turning over documents. >> Do you think there are certain tax loopholes that should not exist? You know, like the carried interest loophole I saw that they kept talking about. We're going to get rid of it this year. This is the year that the billionaires, they're not going to have it. And then it's quietly still in there. >> So explain what that you get to take loans against your own stock, which is non-t taxable, and you never pay taxes if you're a corporation owner. >> To me, that makes sense. >> I love that ability, right? But for some people they see that as cheating, right? They they view it as cheating. What do you mean you can start a corporation and then issue yourself stock and then loan against your own stock and then now you have taxree money. Well, loans are tax are taxree. That's taxfree money. And if you pay interest on it and you invest money into something that's an investment, the interest is deductible too on the loan that you took from yourself. I love that strategy. But let's talk about the carried interest loophole that basically that if someone's a hedge fund manager that they're able to pay long-term capital gains tax on their client's money and report that as their income instead of paying ordinary income tax. >> Wait, explain that one to me. I don't think I've heard that one before. >> It's called the carried interest loophole. Okay. >> And it's really for hedge fund managers. So, let's just say you're managing $100 million and that grows to $150 million and you get paid $20 million as a as a performance bonus. >> That bonus is taxed as long-term capital gains because you're making it from investment income. >> It's not taxed as ordinary income. >> Correct. And so, you have these fund managers that are essentially able to pay 20% long-term capital gains tax instead of the 37% tax. And it's called it's the billionaire tax cuz hedge fund managers take advantage of it. And it's just hedge fund managers. Yeah. >> And and >> Trump and a lot of these people and by the way, it's both sides. It was Biden was saying he's going to get rid of it. Trump was saying he's gonna Everyone has said they're going to get Obama even I'm going to get rid of it. >> No one's been able to get rid of it. >> Wow. I like that. I mean, >> to me it makes sense. Again, it's it's investment income. Investment income is taxed capital gains rates. It's all depending on the type of income you have. You have ordinary income, you're going to pay the highest tax rates. You have investment income, you're going to get the favorable tax rates. the tax code is set up for investors, right? So, that's a you know, I Graham, I'm on the side of the table. Let's leave that one there. Let's leave that one in the code. >> Is there any tax policy that increases tax bills that you like that you think is fair, just >> Yeah, I do I do think um depreciation recapture is 100% fair. If you're going to claim your depreciation upfront by doing a cost irrigation study or if you're an investor and you're taking depreciation and you decide to sell that property, you should pay taxes on the depreciation you took because the government gave you a an incentive. When you buy an investment property, you're going to take leverage 95% of the time. You're going to go to a bank and get a 80% loan or however much you need in a loan payment, but the government lets you write off the entire building on your tax returns. That's depreciation. If you turn around and say, "I want to sell this property and not utilize it as an investment property anymore." Well, that depreciation deduction that they gave you every single year, they're going to come and collect that back. We gave you that as a deduction for you being um a real estate investor and a business owner in the eyes of the IRS. You're saying you don't want to do business anymore. Uh-oh. All that depreciation we gave you, that's going to come back in the form of ordinary income, and you're going to pay ordinary income taxes on that. I think that's 100% fair. But they gave us a way out, too. They said, "Hey, you stay in the game with us. You take on a little more debt, we'll give you this 1031 exchange strategy over here that you can utilize in order to keep you in the game. Avoid taxes, roll over some of those profits into a bigger property, go get more cash flow, and go get more depreciation." >> Is there any tax strategy that you think is unethical that's legal? >> I mean, I don't think the Augusta rule is unethical, but it's pretty cool how that one got created. I don't know if you guys are aware of that. Um, in Augusta, Georgia, they had this golf tournament called the Masters. It still goes on there, but the Masters tournament has been going on since the ' 60s, '7s, and there's just not enough hotels to house people. So, in the state of Augusta, or sorry, in the city of Augusta, Georgia, they allow homeowners to rent out their houses for up to 14 days without having to pay um taxes on the rental income on the state side. Well, on the federal side, you would still have to pay taxes on that. A year later, after that got incorporated in Louisiana and Augusta, Georgia, a year later, it became a federal law. Now, any homeowner can rent out their property for 14 days or less and not pay rental income. Business owners took advantage of that. I'll rent my home to my business for 14 days and charge fair market value rent and be able to claim a deduction on that. Man, that's a freebie every single year if you're a homeowner if you ask me. And I love that strategy. But for some people, they view it as, I don't know, I don't know, getting over on the IRS or a fishy strategy. What's the most clever thing you've seen a client do or suggest to try to decrease their tax bill? What I see clients do now is I see clients take their spouses off of payroll inside of their businesses. Before it used to be a really great strategy to have your wife or your spouse be on payroll cuz then you can max out their 401k if you gave them a salary and their salary is a tax deduction. But what I'm seeing a lot of savvy taxpayers do is they're not even giving their spouses a salary anymore. They're setting up real estate management companies for them and they're making them the manager of the real estate portfolio. They're still business owners. They still have an LLC. They can still pay themselves a wage, but they're getting a wage for managing their own investment property. Well, that's a deduction, isn't it? You get a deduction every time you pay the rental management company. But if you take that rental income and put it into a 401k, didn't we just get a second tax deduction right then and there? So, we're seeing real estate investors utilize their spouses as real estate professionals, opening up these management companies and utilizing the ability to um claim losses against active forms of income by qualifying as real estate professionals. So, what's something that most people should be doing with their taxes, but they are not? >> Most people should be looking at depreciation. I'm just going to be honest because it's the best way for you to invest money and get a return while also offsetting your taxes. If you're asking me ways to reduce your tax bill, you're going to want a return if you have to spend money. And the government rewards those that spend money. If I'm a business owner, I have to spend money in order to get my products or service to the marketplace. So, me building a website, hiring employees is all going to be expense to me. If I'm a real estate investor, I have to lease out my property, have affordable housing, and that's how I'm going to be able to get rental income and be able to offset my tax bill. So, if you're somebody that wants to really take advantage of the tax code, I would highly recommend that you start looking at depreciation. Real estate can create that depreciation for you. And if you utilize the short-term rental strategy, if you're W2, this is the way you can offset your taxes. If you're self-employed, you can look at the short-term rental or the real estate professional status if you have the time to qualify as a real estate professional. I love depreciation. So, I'm curious. At what income should people stop using Turboax? >> If you're a six-figure earner and you're on Turboax, what are you doing? Come on now. >> Even W2. >> Even Wra. Because at the end of the day, man, Turboax is set up for, you know, lower to middle class that really just want a simplified way to fill out their returns. If you have W2 and no other investment income, no other investment. Okay, go ahead. simply input your information into Turboax, pay your $100, get your refund, get in, get out. But if you have any investments at all, you're investing into syndications or um you're investing into rental real estate or you started a hobby business, you most certainly probably will miss out on deductions by just not having a qualified CPA to prepare that tax return. >> I see you're wearing a very expensive watch. Is that a is that a nice write off? >> Uh I did not write this watch off. You know, it's funny because I get asked that all the time. Carlton, you you seem like a watch collector. I'm sure you're writing these off because you always wear them on your podcast and YouTube videos. I don't need to write these off in order to pay 0% in taxes. I pay 0% in federal income taxes since 2019 on an 8 figureure income. I'll continue to do that because of my savviness with the tax code. I don't need to spend money on a watch to pay 0% income taxes. I would love to make these write-offs, but I don't have time to start a watch business and talk about watch trading, nor do I want to play around with the IRS by claiming this as a marketing expense. >> So, how much do you make and how much do you pay in taxes? Um, I made eight figures. Um, hopefully we'll approach 20 million this year if if all things go well for our firm. We did just over um just over 11.8 million last year. We're we're on pace to do close to 20 million this year. Um, and with a 40% profit margin. So, yeah, I would have a very significant tax bill if I did nothing. I'd be looking at at least $3.5 million in taxes if I absolutely did nothing. I'll probably pay 0% in federal income taxes again this year because I'm already actively doing things to offset my taxable income. My private family foundation's already set up. I'm making investments into real estate actively right now. I have movie film projects coming up that give me a 4x deduction on every time I put money into a movie film, which we'll talk more about. So, these are the types of things that I'm going to proactively do to offset my tax bill in real time while most taxpayers are just going to wait till the months of January, February, and April to get told what their tax bill is. >> What about art? What about donating art? Isn't this a a bit of a sketchy area? Maybe you could you could you buy a piece that's undervalued. It's appraised at 10 times what you paid for it because it's unique and then you donate it. >> How does this work? >> Yeah. I mean, so how it works in the art industry is like you just said, you can buy a piece of art. Art is so speculative, right? It could be worth $1,000. It be worth $100,000. What most people do is they'll buy a piece of art inside of their business, deduct it as a business expense initially. Sometimes they'll do this or what they'll do is they'll buy a piece of art, then get it appraised and donate that piece of art to their foundations. So, if I have a piece of art that I purchased for a million and it gets appraised for $1.1 million, I can may write that off and push it over to my foundation. My foundation allows for me to roll over 30% of my adjusted gross income for a year one tax deduction. So, we see a lot of people making donations with artwork as a charitable donation that reduces their taxable income. >> I saw one piece of art that's really unique. So, I've been getting really into like old Disneyland artifacts, and the Haunted Mansion has the highest resale value. So, if you can get anything from Disneyland's Haunted Mansion that was used in the ride, they're really rare. They don't sell these things. >> So, it's usually Me, too. >> I love the Haunted Mansion, >> dude. I'm thinking this is a gold mine one day. So, the most valuable thing in the Haunted Mansion is when you're going down in the elevator and those pieces of art >> that just glide upwards. Love them. >> Now, I got really into this. I I I got chills right now. It's so good. So, from the late 1960s to the early 1970s and in the Disneyland Haunted Mansion rides, those posters were hand painted. And they only did that for a few years in the very beginning cuz they wore out over time. And so, after 4 years, they just switched to prints. But those original handpainted uh pieces of artwork are still out there. And there's one that went up for sale recently, $250,000. Okay. >> And the guy has an offer on it for $125,000. I'm thinking, man, this this this has got to be a million bucks one day to have the original handdrawn Disneyland Haunted Mansion elevator ride piece of art. >> Yeah. >> So, that's one of Oh, and there's there's also different values between the pieces of art. The most valuable one Yeah. is the uh lady on the tightroppe with the alligator. I >> love that. >> And that one's never come up for sale. >> Yeah. >> So, let's just say you buy this piece of artwork and you hold on to it for 5 10 years and you get it appraised. >> You bought it for 250k. Let's just say it appraises for 1 million. Then you you donate it to your private family foundation. Did you ever lose the piece of art? No. It's controlled by your private family foundation. But did you get to leverage the art? Yes. You got a tax deduction for it. So now the arts inside of your foundation of which you're a board member and a shareholder of the foundation. So you can control the asset and then your beneficiaries will determine what to do with it if something were to happen to you and it stays inside of your foundation. >> So if it's in the foundation, where does it have to be displayed? What if it's in the foundation in the living room? Does it matter? >> In the living room. Absolutely. Your foundation can own that asset whether it's in the living room or it's sitt inside of a museum. >> That's interesting. >> Yes, it is. And you're the person that sets up the foundation. It's a private family foundation. That's what makes foundations so beautiful. It's typically just you and your family members that are going to be on the board of advisors. Why isn't everyone doing this? Like, why can't I put my car in the foundation as like a historical vehicle? >> Well, if you try to take the car out and sell the car as a taxable event and >> Well, what if I don't sell the car? What if I want to keep the car for a long time? >> Oh, absolutely. Then you can use it as a charitable asset. Absolutely you can. >> Mhm. >> You can. >> Again, where do you draw the line between now and >> foundations are expensive to set up and you have to maintain them. I would say you're probably going to pay anywhere between $10 to $20,000 to set up a foundation. And the compliance fees for a foundation is about $5,000 a year. So unless you have a net worth of about a million dollars, I would say it probably doesn't make sense for you to maintain a foundation because a contribution to a foundation should be relatively about 100 to 150k a year is what we see clients putting in. Here's about 10 to 15% of your net income if you are making a million dollar. >> That's mind-blowing. Look at the haunted mansion artifacts. >> I I need to >> seriously >> don't you collect cars, too? >> Ye. Yes. >> Okay. Yeah. So, we had a client start a foundation and his foundation runs a cars and coffee. He donated 10 supercars to his foundation. At least 6 million in cars. That's just the foundation. The foundation owns the cars. Can he drive them to the cars and coffee? Yes, he can. He's displaying them at the cars and coffee. Is he is his foundation paying for that event? Absolutely. Does he happen to meet other people that he networks with that he ends up doing business with from the Cars & Coffee? Absolutely. But is he making money from that specific event? No. It's a charitable event. It's Cars and Coffee. Anyone can pull their car up. Anyone can just sit and have coffee. His foundation is running a Cars and Coffee. And he's been able to scale his business by doing so. By putting all of his luxury cars into a private family foundation. >> And what are the limitations of doing that? Cuz I take it you can't drive your kids to school. You can't go to the grocery store. It's like purely display only. >> Display asset, charitable asset. I mean, I'm sure you can get in the car and and and and roll around in the car and do what you need to do, but it's not a daily for you because it's a foundation asset. >> And then what happens if you sell the car? >> Um, if you sell the car, the foundation sells the car. There's no taxes inside of the foundation. >> Jack, your Tesla could go in a in a foundation. >> That is a pretty historic car. Most expensive Tesla Model Y. I bought that at the worst timing imaginable. >> Was it right before Elon slashed the prices? I I'm ashamed to say this, but all in for this used inventory. Not used, but like pre-existing inventory Tesla. The only upgrades it has is the long range and has the white interior. All in $58,000. >> Shoot. >> And he was over the income limit and couldn't even get that $7,500 EV credit. Got screwed both ways. And he had to pay sales tax on it >> cuz in Nevada if it's a private >> 58 all in. Okay. >> Yeah. I think the car was like 53 or something. Okay. Yeah. >> And you still owe on it, I'm assuming. >> Uh, no, I bought it in cash. But but and and I also did some math and like I was spending probably $5,000 per year in gas alone prior to that >> and I wrote off a good amount of it as well cuz I also have a personal car that I use. >> Oh, good deal. >> Yeah. >> Oh, I love that you separate personal from business vehicle. >> Yeah. Yeah. That's what I kind of thought. You know, it's easier to justify if I have like my fun car, my personal car, as well as my business car. >> I definitely do the exact same thing. One Lamborghini is my business car and my other Lamborghini is my personal car. Which Lamborghini is which? >> Uh, Lamborghini Urus is business because that one gross vehicle weight ratio is over 6,000 lb. My Lamborghini Aventador is personal because that's a Lamborghini Aventador and I don't want to write it off. >> What other luxurious things do you buy? >> Um, I spend a lot of money traveling and I know most people probably would rather spend money on like jewelry and stuff like that. Outside of watches, I like to travel. I want to go see new destinations and places I've never been and I want to write those things off. It's always fun for me to go to places that most people would deem a vacation spot and I turn around and make it a ride-off. For example, me and my wife went to Hawaii. I went to Hawaii to shop real estate. I did not go to Hawaii for a vacation. Was I sitting at the beach? Absolutely. Did I have my ties? Absolutely. I was there to go look at real estate. A vacation that was traditionally set up for us to go explore the island to have fun was really a business trip where we were still able to explore the island. >> How does your wife feel about that? is your wife is she, you know, she's fine with that. She's like, "Okay." >> 100%. 100%. Me and my wife are 100% aligned on what we're doing, which is we are building a life for our children and we're going to have fun while we do it. And a part of that is making sure that we operate within the compounds of the tax code. She understands she's a real estate professional. She documents everything. When we get ready to leave a restaurant, she says, "Hold on, hold on. Get the receipt. Flip it over. I'm here. What did we discuss today?" My wife is so in tune to what we need to do. >> And how do you document everything? Because because that's one of the things for for me it's it's hard because there are so many little random things. >> But you do it perfectly and you have plenty of logs and receipts and everything. >> But but my gosh, it's like when you order a little item for the camera on Amazon and it's like a $9 little trinket, it's just >> it's it's it's time consuming. >> Yeah. My assistant my assistant meets with my bookkeeper every month and gives her a description of all the expenses that would be something that needs to be explained. Carlton spent $375 at Amazon, but what was the $375? Oh, Carlton bought a new attachment to his camera this month. Okay, I'm going to document this. Carlton bought new camera equipment this month. So that way, God forbid, Carlton gets in an audit in 2027 over his 2025 tax returns. I don't have to go back and try to remember, okay, what were we buying off of Amazon in the month of March? Oh, I'll look at all of my March statements that she documented for me. Here's everything I spent on Amazon. Here's all of my travel expenses that month categorized of what I did that month. Not the fact that I just left the country. Why was I leaving the country? What was the intention of where I was going? Was it a podcast? Was I going to go travel to actually film something that was going to help my business? Am I meeting a client? I want to be able to remember every single month and what I was doing to create that expense in that month. >> And what if someone doesn't have an assistant and a bookkeeper that meets every month? >> Yeah. Then you're going to be your own accountant. You're going to be the one that categorizes your own expenses. You're going to be the one that does the documentation. You're going to be the one that sets up the QuickBooks. But here's what I'd recommend to help yourself. Start off by taking pictures of every single receipt. And when you go to a restaurant, when you go to Home Depot or Staples or wherever you go, take a picture of the front of the receipt. It says where you are, what you spent your money on, and the time that you spent your money. The two things that are missing are who it's for or what it's for and who you are with. Those are two things that typically the IRS needs to know when you're taking a a business meal expense that isn't going to be reflected on a receipt. It's hard for me to say, "Okay, just because I see two orders of enchiladas here on this receipt that somebody else was with you." >> That's funny. We were with someone who was taking photos of the receipt with everyone in the background. Yeah, >> that I was just thinking about that. And then you could go with the new photos thing and just click the search button and then just type receipt and then it probably throws up every single receipt you need. >> Done. Done. And then you could you could send a text message of that receipt to your your notes in your iCloud and then now it's saved forever and you could write a brief description. Now it's saved in your notes section inside of your iCloud. That's what I did early on before I had an assistant. I would take pictures of every single receipt and then I would just text it over to my notes section, the receipt. And then when you text it to your notes section, it pops open. What's the description? So I just write the description of who I was with or what I was doing. >> So to wrap this up, if someone is making $60 to $200,000 a year, what are the three things that they should do today? >> Are they self-employed or W2, though? >> Let's do both. Let's start with W2. >> All right. So if you're making $60 to $200,000 W2, here's what I'm going to need you to do. The first thing I'm going to need you to do is look at maxing out your qualified retirement plans. If you're somebody that is W2, it makes sense to put money into your 401k. If you're at the 60 to7 or $80,000 realm, you don't need to offset your taxes. You need to build wealth. I want you putting money into the Roth 401k. If you're approaching 200, $250,000 in income, this is when you can start deciding whether or not you want to continue to build up the Roth dollars and just pay the tax or if you want to turn around and start mitigating your tax bill and start contributing to a traditional 401k. But qualified retirement plans is going to be your arena. Then we go to traditional IAS. You could park $6 to $7,000 into a traditional IRA that's going to drop you down your taxable income a bit further, but you're just limited on what you can do with an IRA. Now that we gotten all the boring retirement accounts out of the way, what are you going to do to create an active loss on your tax returns that offsets your active income while still earning a profit from whatever you invest that money into? We have real estate, which has a huge, huge upfront capital intensive amount of money that you're going to need in order to jump into real estate. And then we got oil and gas. I believe oil and gas is probably the option for the person that's a little bit newer to investment. Even though it's an alternative investment, the reason why is because it doesn't require so much upfront capital. It just doesn't. It gives you that active loss on your tax returns and you're owning a well that's depleting over time. What the IRS created was a 15% depletion allowance, which means the first 15% of revenue you receive from the oil and gas well is non-t taxable. That's taxfree wealth. So, if you're telling me, hey, how can I save more money and build my wealth? We have to look for ways where the government's incentivizing you. Oil and gas sector is definitely a way. And if you're in that space where you're just at 60 to 200K, highly recommend that you look at strategies like that. Now, if you're self-employed, this is when we look at switching you from an LLC to an S corporation. If your income is over $60,000 and you're in an LLC, you're getting killed by self-employment tax. That's Social Security and Medicare. That's 15.3% on all of your business's profits. We need to separate your business profits down into two categories. Salary and distributions. Why? Because distributions, the money that you just take out of your business, that's not subject to self-employment taxes. That 15.3% that the government put there. The payroll that you give yourself out of the business, the W2 you cut yourself from your business, that's the amount of money that's actually subject to the 15.3% self-employment taxes. So, if I'm somebody that's making 60 or more, I better make sure I've switched my LLC over to an S corporation and I'm giving myself a very good reasonable salary. Not too much, but a reasonable salary. Um, so that way I'm eliminating my self-employment taxes. Now, enters the game with the SC corporation. Now that you're an S corporation, you have what's called the QBI deduction. The QBI deduction, all it is is a 20% deduction on whatever you didn't pay yourself. So remember we broke down your income to salary and distributions. Well, over here on the distribution side, you get a QBI deduction. So whatever that distribution amount is that's coming to you, imagine taking 20% off. You get a 20% deduction on that QBI. That's amazing. What about us starting to take advantage of the fact that you're a business owner, such as claiming a home office deduction or writing off your vehicle? If we decide that it makes sense for you to have a vehicle that weighs over 6,000 lb, now we're leveraging the tax code. If you want, you can purchase a vehicle that has a gross vehicle weight rating over 6,000 lbs. You might be able to write off or wipe out your entire tax bill with one strategy alone, just buying a car. But that's a depreciating asset. What if we want to do something that doesn't require us to spend so much money? What if I just want to put money back in your pocket? This is when I look at the Augusta rule, the ability to rent your house to your business for 14 days. That's taxfree money coming back to you. That money that you receive from renting your house back to yourself, you're writing yourself tax-free checks. So, this is absolutely a must if you're an S corporation owner to leverage the Augusta rule if you're a homeowner and make sure you're documenting it and getting the fair market value to do it legitimately. >> And when does QBI phase out? >> Uh QBI will based off of 2024 law, I need to look at the new 2025 tax code. It was right around 400,000. So, if you made over 400,000 is when you no longer start to receive that QBID deduction. >> Can you get the QBI from 0 to 400 though? >> Yes, you can. Yeah, it starts to phase out though. it slowly starts to phase out. Once you're over that, then you get zero of it. Sucks. >> What are your thoughts on an insurance captive? >> I'm not the biggest fan of insurance captives. I understand the ent the entire purpose of insurance captives. The IRS has put them on their naughty list. um IRS comes out with a list of things that they are classified as more auditable than other things and they put um captive insurance uh businesses as one of the more auditable entity structures to establish. Which essentially you're doing is saying I'm going to have a business that is going to reinsure my business. So you can have a captive insurance company or a reinsurance company. The money that you put into this captive is a tax deduction against your entity. So, if I have an S corporation and I have a captive insurance company that I set up myself, the money that I'm rolling over into the captive insurance company is a tax deduction for me, the money that's sitting inside of the captive can grow, but it's also being utilized in the event that I ever have an issue with my company from an insurance perspective. So, now I can use my own insurance company to cover liabilities associated with my operational entity. That's the captive or the reinsurance uh of >> when is that legitimate? Because it seems like as a YouTube business, >> I need to be insured for things that you would never even think about. Like let's just say we talk negatively about a company here and they sue for defamation. >> Mhm. >> Things like this seem like reasonable things to insure for. And going through a traditional insurance policy might have severe limitations on that. Of course, the issue is people abuse the reinsurance company because when you put money into that reinsurance company, you're like, "Okay, I park that money there and it's just sitting there now. I want to go use that money. I don't want to just let it sit there." So, what they do is they start taxpayers will start taking loans against that captive insurance money and then they take loans to go spend it on things that they shouldn't have spent it on and they abuse the intention of the structure. And when that happens, the entire structure can come crumbling apart. We've seen um taxpayers get into audits with these captive insurance plans and similar to the charitable LLC and because of the way in which they utilize these structures, the whole thing comes tumbling down. The IRS audits not only their operational entity, they audit the captive entity and they start assessing clients going back year over year to start figuring out, okay, well, if you're doing this unlawfully right here in 2024, what's to say you weren't doing something inside your operational entity unlawfully in 2023? So now they have probable cause to go and dig deeper and deeper and deeper. And this is what we've seen happen with a few taxpayers. >> If you were to rewrite the entire tax system from scratch, >> what would be on it? >> It would probably be only a 100 pages instead of 82,452 pages. I would have the similar tax incentives that are already existing for business owners and investors. I would probably have a flat 15% tax rate because it doesn't make sense for anybody to pay 37% in taxes. I would absolutely abolish property taxes. I think it's insane that if you pay off your property that you actually don't still own it. You still have to pay property taxes. Um and then I would look to rid away with all the government subsidies and assistance. I would just make a flat tax. We're all operating on the same playing ground here. I would get rid of any credits, um any exemptions. Um I would only focus on tax deductions for investments and business owners. And I would make sure that there's a flat tax. That's what I would do. Here's what we're going to do for the members because this is something that we're not going to put in the normal episode. I'm going to talk to you about my tax situation and I'll put it here. So, uh, you know, I'll be a bit vulnerable. So, if you want to see that, join the members section. What would be your advice to me? >> Yeah. What would What would you Are you comfortable sharing like what a net profit range would be? >> I'll say that I'm I'm paying 15 minutes later. Who is building your equity right now for you other than you? >> Other than you. >> Honestly, it seems like the easiest way is just Puerto Rico it, right? >> Realistically, and just not do anything and just move to Puerto Rico. Like, that's the one thing and save a ton of money. >> 60 this whole thing. >> Why don't you move to Puerto Rico? >> You know, I love it here, bro. I don't pay any federal taxes. Why should I move to Puerto Rico? I don't pay any federal taxes. >> Just not to have to do this song. >> I moved to Florida. I moved to Florida. So, I I got out of California. I got a place in Florida. I'm not doing the whole California thing no more. Put that on camera. I'm not doing the whole California thing no more. >> So, I'm getting rid of the state problem now. Now, I'm going to be in a place where if I wanted to, I could pay taxes, but I'm not I'm still not going to, right? But I know that I want my wealth to be in real estate outside of my business. That's something I'm passionate about. I really want to be able to say when this is all and done, I'm not just turning over a tax advisor, a tax accounting business to my heirs. I'm turning over masses amounts of real estate with masses amounts of equity built up inside of it. And from majority of the wealth teachers that I learned from, this is how their wealth has stayed in their family for generations, not just for one. >> Yeah. Well, thank you so much for coming on. >> Thank you for coming on the show, guys. You wouldn't believe it. It's 12:47 a.m. >> We're filming this last minute. >> We're filming this last minute to get this out for you guys. We're exhausted. You guys flew over here just for this, right? >> Yeah. I came straight from Europe up from Europe to Idaho. From Idaho, straight here to get this this >> deserve a subscribe for both us and you. We're going to link your information down below in the description. Seriously means so much. And like we said, we're filming this at almost 1:00 in the morning just so we have more time to edit and get it out as fast as possible. So, all we ask in return is just a subscribe. If you're watching this, you have it. It's free. It costs you nothing. And and I probably with what you've talked about, you're going to end up saving thousands of dollars. And by the way, this isn't like tax advice. It's just, you know, go and look into it for yourself, but you're probably going to save money. So, that's it. Just like and subscribe, share this with your friends. All right, guys. Thank you so much for watching. Till next time. See you.