EP 015 - What a Tax CPA Can Do, and Why Tax Matters to You?

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How's it going, all my real estate investor audience, and also all my CPAs, fellow CPAs and EAs listening to our material. We have an interesting conversation and presentation that I thought I would add to our podcast and webinars. And this is one for the first time of me talking to a group of high school students. So my sister is actually a high school teacher, and she asked me to be a guest volunteer on the topic of what does a TPA do, and also how you and what to think about with taxes and why tax teacher matters. And we also talk about some of the things that I do with my clients and how the tax code is structured to incentivize different activities. You might find this interesting and engaging. You may want to send it to someone else in that demographic of high school students or college students interested in understanding some of the basic concepts. It was interesting and it was fun talking to some of the students. I had a good time. Now, for some of you watching the YouTube version of this, we had to, I'm not sure how the overall format's gonna look like, but we may eliminate all of the visuals because we do not want to reveal any of the identities of the students. But uh you know, I hope you guys enjoy this. It's gonna be uh fun and interesting conversation on some of the basic concepts. And stay tuned, we have more stuff coming your way. And if you're interested in being a client, email info at markprobergstpa.com. And if you know any bright accountants looking for an exciting position, send them our way as well. Have a great day. Um I'm just gonna jump into it. So, what we'll cover is what I do as a CPA, um, why tax matters and uh why tax incentives exist for business owners and real estate investors, and stories and strategies that I implement, and then we'll talk about the benefits of business ownership, and then you can ask me some of your questions on how tax may be impacting you in the uh right now or in the future. Uh, a little bit about me. I am a CPA that stands for certified public accountant. That means I can sign off on audited statements in front of the SEC, uh Securities Exchange Commission. It also provides a level of prestige that we have taken four very hard professional uh certification exams, and it it demonstrates our expertise over our understanding of tax and financial concepts. Um, some other things, masters in accounting and bachelor's from Ohio State University, and some other certifications that we don't need to go over in. I'm a native New Yorker like my sister Janet. And now I want to ask the class something. Um, what do you think of when you hear the word tax? Can I get some hands raised or let's put something in the chat? Chat what what words come to mind when you hear the word taxes? When we word association, tax portion of your earning, extra payments. Very good. Anything else? I'm gonna give you guys about five more seconds. What words come to mind, or what do you think about when you hear this word taxes? Government, right? The money, the government taking my money, absolutely, very good. Okay, so um let's talk about so taxes, right? Are are um you know the money that the government's taking out of your income or your salaries or you're paying for your properties that is going to the government to pay for all sorts of government services and infrastructure, like the schools and hospitals and universities and roads and all that infrastructure is paid for with taxes out of your pocket. Maybe not yet, but you will. Pretty soon, taxes are gonna play a much bigger role for you as you enter the real world. So, what is tax? So, most of you guys are gonna get salaries, and when you have a salary, a portion of that salary is gonna be paid to the government in the form of taxes. So imagine this: you're gonna be making $50,000 a year, you're super excited to be making a thousand dollars a week, but when you get that paycheck, you're gonna find that only maybe $6,500 or $7,000, $7,500 is gonna actually be distributed to you. And how are you gonna feel when you see your first paycheck and you're only gonna get maybe 60 to 75 percent of what your your salary is in your paycheck? How is that gonna make you guys feel? Disappointed, it's gonna make you feel scammed. These are good, these are good ones. It's gonna you're gonna be a little bit pissed off, right? Um, some of the other things are attacked are our income. So if you are a business owner, your income is your revenue. So your revenue is the money that's coming in. So let's say you would run a lemonade stand, the money that they pay you for the lemonade is your revenue minus your expenses, and your expenses are the expenses you incur for your business. So cost of the lemons and the sugar or the table, that would be your expenses for your lemonade stand. So let's say you make 20 bucks and you have $10 of expenses, your income is $10, and that's what you pay taxes on as a business owner. Other things are paying, you're paying taxes on not only is money coming out of your paycheck, but if you own property, you're paying property taxes to the county. And you're also going to be paying sales tax. You know, whenever you see something fancy at the store and it says, Oh, it's only going to be $100, and you take it up to the store, you ring up the item, it's actually like $108 because of that sales tax that you're paying on those items. Uh, and that you know, you're paying sales tax on food and groceries, so many items here. Uh, so taxes is uh, you know, probably one of your greatest expense or one of your greatest expenses throughout your whole life. You'll be paying more money is going to your taxes than almost anything else. So it's important. Um, some of the things, forms of taxes, you're gonna be paying the federal government taxes, you're gonna be paying the state government, and you're gonna be paying New York City. Uh, you're gonna be paying a New York City tax if you live in or work in New York City. You're also gonna be paying taxes for Social Security. You may have learned that what Social Security is for so you can retire, and Medicare expenses as well. On top of your federal and state taxes, that's a lot of money coming out of your paychecks or your income going to Uncle Sam. So obviously, taxes is uh a big thing, and what I do go back a little bit. My mission is to help real estate investors and business owners reduce their taxes to free up capital. And when I say capital a lot, I'm just talking about cash that can be put back into your business. So we reduce your taxes, and that allows you to have more money in your pockets and you use that money to put back into your business, buy more of those lemonade stands or rental properties. And then when you save money on your taxes, you free up that cash and you can build your business much faster and reach your goals. And my goal is to help all my clients obtain financial freedom. And when I say financial freedom, it's getting to the point where you have enough income from your real estate investments or maybe from your business activities that you do know you no longer have to work, but you work because you want to and you're doing what you like with your day-to-day. And now you have more time to focus on your passions and spend time with your family. So, how do I do this? Well, first, we want to think about what are some incentives that are investing in business owners. So, all my clients are real estate investors and or business owners, and we can reduce your taxes significantly if you have one of those two roles. So tax incentives exist. You can reduce your taxes if you are a business owner. And the reason why is Uncle Sam, the federal government and state governments want to encourage business development. They want to encourage businesses to grow and thrive. Remember when Amazon was thinking about going to New York City, uh, they were thinking about all these tax incentives to help them save money on taxes to encourage growth of the business and to create more jobs, right? So we want to encourage jobs with tax incentives. So when we reduce the the taxes and for these businesses, that gives them more cash to free up, to hire more people and to grow and invest and produce new products and vaccines and patents, all sorts of innovations are more possible when you have more cash to invest. Also, um real estate, when we encourage real estate investors to purchase properties and invest, that increases property values and the values of these properties. We're beautifying these buildings, and that allows the government to pull more taxes out when they tax us on our properties. Uh, and it also just to provide quality housing, it makes the neighborhoods more appealing, it makes the neighborhoods more desirable, it encourages development and employment and just overall well-being of these communities when we encourage real estate investors to come and fix up houses or you know, flip and develop, or whatever we're doing to improve the quality of housing in the neighborhood. So I work with these clients and you know, we take advantage of these tax incentives to reduce their their taxes and use this cash to reinvest in their businesses. And when they reinvest, they create more tax savings, and that creates more cash and to put into more assets or just when I say assets, that could be real estate or maybe buying machinery or equipment, anything that can help you build your business and succeed and thrive and generate more income. So I take advantage of these strategies and I walk my clients through them to help them with reducing their taxes and growing their wealth. And what we see is you may have learned about the effect of compounding interest and compounding is we kind of see a snowball compounding effect where the clients are saving more and more taxes, they're investing into more and more resources, whether that be assets or employees or whatever, and that creates more tax write-offs, and we see a snowball effect that allows for continual growth. So some of the strategies we do is just maximize it. First off, when I work with any new business owner, is we maximize their write-offs. We make sure that they understand what they can write off. When I say write-off, I mean what can we treat as a business expense? Remember, we were talking about writing off those lemons. So we want to maximize our expenses or write-offs. So this amount, this income is lower, and we're paying less taxes on this overall net income of revenue minus expenses. Um, just so you know, when you turn right, it's hard to hear you. Okay, sorry about that. Um I'll uh put my screen a little closer. Uh so uh when we or I'm just gonna move my eyes instead of my head. Um now I look weird, cross-eyed, but uh when we when we uh so what we want to do is we want to make sure we understand all these expenses that we record and write off when we report, we file our taxes. So we're not overpaying on our taxes. Now, most business owners have not had the opportunity to learn what a write-off is, what's an expense, because they don't teach this in high schools and colleges. So when you start a business and you're finally on the way, you know, I sit down with my clients and we make sure we understand what are all these expenses that'll reduce our net income and reduce our overall taxes. Uh, some of the things that we can do is just um general expenses, you know, what is our cost of goods sold, making sure we're writing off that lemon, right? Or we also have some advanced strategies that involve finding business purposes in our day-to-day uh expenditures. So now ordinary expenditures now become tax deductions, and we can further drive down that taxable income and create tax savings. So, one of the strategies I've done with my clients is finding business purposes for vacation. So I had a client who uh does some modeling, he has a modeling agency, and I said, Hey, why don't we take advantage of you know writing off some vacations when next time you go to Hawaii, do a photo shoot. So he actually he's going to Hawaii, he's writing off the whole trip, the flight, he's writing off the Uber to and from the hotel, the hotel stay, and some of the meals because now we have business purpose because he's doing a photo shoot in Hawaii. Uh, some of the other things that we talk about here are um a very popular strategy, is what we call income shifting, right? So we want to basically we can shift our income to other people uh or other or to other times and events and moving around how this income, you know, where this income is reported, and that's going to result in a reduction in your taxes. Let me and that might sound a little um a little bit gray. So let me explain this by giving you an example of income shifting. So as you make more money and your salary increases, your tax rate goes up. So the highest tax rate now is 37%. The highest it's ever been, I believe, is in the 90s. They used to there used to be a time where 90% or more of your your income was going to taxes around the time of World War II to raise funds for the war. So there was really, you know, you were just getting hit in the head, any dollar you made, the majority of it was going to the government. Talking about being pissed, right? So so there were times where you know an insane amount of money was being taxed. Right now the rates are a little lower, but you're still paying more taxes at a high when you make more money. So if I have a client that's paying a 37% federal tax rate and maybe an 8% state tax rate, and then that self-employment, we're talking about close to 50% of that income going to taxes. But the client's children make less uh let make less money and therefore they pay less in taxes. So, what does that mean? What do we do? We want to maximize those write-offs and expenses by putting the children in the business. That's one strategy, right? So, what we do here is we will hire the kids and pay them to work in the business. So, whether that be um helping out with some financial analysis, maybe a popular strategy for teenagers is we get the kids to take over the social media marketing of the business, and that will be an expense to the owner, and then the kids are gonna be recognizing this income on their taxes and reporting it, but because the children are maybe full-time students and not making as much money, they're gonna pay little or nothing in taxes. So now we get the right of bringing down the taxes at the parents' level, and then the kids are gonna be paying no taxes on their income, so the net effect is significant. So let's say you're paying a net 50% in taxes, and you pay your kid $15, you know, $12,500. That reduces your taxes by roughly. Can someone tell me how much that's gonna be? $6,250, right? I think someone tests my math on that. Uh you know, roughly $6,000 reduction in your taxes, and we don't increase the taxes because your kid isn't paying taxes on that income. That's just one of many examples where the net effect is a reduction in taxes, and then there's some more advanced strategies where we put that money into a retirement account and that retirement account grows tax-free and can be used for college. Some other things that we can do is uh shifting the timing of these expenses to create additional tax savings. So, one of the things we which is called bonus depreciation, it allows us to write off all of a vehicle in year one instead of writing it off over time. So we can buy a third, you know. I had a client who purchased a um a Land Rover when she learned about, and I told her about how to take advantage of something called bonus depreciation, which is depreciation is just to account for the wear and tear of an item. So basically, instead of writing this vehicle off over the course of five years, uh, because we put this vehicle in her business, uh, and we, you know, we we the had the vehicle had certain attributes. We were allowed to write off uh all the vehicle in year one. Now I got a call from the client. The client says, Hey, you know, when you you know when you told my wife about bonus depreciation, she was excited to buy this new Land Rover. Is there a limit on how much we can use for this for vehicles? And I said, No, you can write off the whole thing. The client said, I was hoping you'd say that there was because I really don't want to buy a $110,000 Land Rover. Anyways, we wrote off the whole Land Rover. I estimate that created about $40,000 to $50,000 of tax savings by writing off the Land Rover. And we planned appropriately to make sure that Land Rover was 100% business use. So uh it could qualify for all of these write-offs to be treated as a business expense. Um another thing uh that I do that is very popular called cost segregation. At a very high level, this allows you to shift your expenses on the purchase of a building into the very first year that you own it, so you can write off more uh expenses in the very first year that you own the property. Basically, what that means is you know, you put 20, you know, you buy this building. A lot of times we're financing these buildings, so we're not even paying for the whole building. And what we do is with the cost segregation study, it allows us to write off a greater portion of it in the first year, and that allows us again to reduce our taxes to free up additional cash to uh to purchase more property. So, you know, I had a client who uh whose prior accountant didn't know what cost segregation was, um, and I was able to implement cost segregation on four rental properties, and that created a uh we amended the return and created $90,000 of tax savings for that client. Client was very happy, obviously, for you know, for the results of this of this amended tax return. And you know, the strategy is we take that $90,000 of tax savings that we create and we use that to buy more and more real estate. And again, we get this snowball compounding effect of the tax savings creating additional cash to put more and more money back into our businesses. So at a high level, what we're doing here is we are understanding and navigating the tax code in order to minimize your taxes, to free up cash, to put back in your business when you're a business owner. And that's why being a business owner has its perks. So um, you know, I'm a business owner, I run my own practice, and uh it's very fulfilling. And I just want to talk to you about some of the benefits of being a business owner. So, some of the benefits are having more freedom, and you'll see a picture here. I took this is me on uh uh uh ATV, you know, those four-wheeler quads. I took a trip around the mountains of Guatemala and I lived in Guatemala for two months of the winter because I run my own virtual practice. I don't have a real office, and that allows me to work out of wherever I want. And I didn't feel like dealing with winners, so I was in Guatemala for two months, and it was pretty cool. Uh, also, you have the freedom over what you do and who you serve and the type of products you deliver, and having that creative freedom can be very gratifying. Um, you have greater earnings potential when you're a business owner. There's no limit on how much you can make. Instead of you know waiting for a raise and waiting for a salary, uh, when you are in your control of your own destiny and in the driver's seat as a business owner, there's a lot more money that you can make. We're just looking at the richest people in the world. One of the things they all have in common is they all own businesses. And when you own a business and you have a good strategy in place to reduce your taxes, you are gonna pay less taxes than you would if you made that same kind of money as an employee. Some of the downsides of being a business owner is more risk. You might have to work longer hours, you might get sued during you know, you're Responsible for everything. You can't quit, you can't quit as easily. I can't just walk away from my clients. They already paid me. So there are challenges. It is hard, but it can also be fulfilling. And you have the opportunity to really pursue your passions and carve out, you know, carve out your own path and really choose your own destiny here. Um so you know, before I open up to questions, if there are any questions, uh if you're interested, you can shoot me an email, mark at markperlbergcpa.com. Anyone who emails me is invited to my live webinars. And those are also recorded on my YouTube site, which you can subscribe to if you're interested in learning more. Uh, and uh just this is gonna be great for anyone who is thinking about ever starting a business uh and and considering that path, you know, you're gonna you have a lot to learn about who you are and what you like. Uh, and I would like it if you just consider the possibility of being a business owner and taxes uh is gonna be a major factor on the development of that business. And you know, even if you are not a business owner, uh taxes is still gonna play a crucial part in your life. Um, before we get into QA, just some other thoughts on financial understanding your finances and financial literacy. You know, I was talking to Janet in the prior uh class about you know some of my advice to young people. And one of the most important things to think about is um be very weary of these credit cards and credit card debt. The interest rates are insane, and you meet so many people where they have so much credit card debt that the interest go grows, you know, usually it's between 20 and 25 percent growing and it and compounding annually. And the interest rate is going to grow faster than you could pay it off a lot of times. And it's just uh not the best way to go if you want to get a head start on building wealth and and achieving your goals of uh of wealth or financial freedom or whatever you're looking to do. Um, and also, you know, being being smart about your finances and monitoring your student loan debt, you know, and uh and then also you know, start working, you know, just even if you don't, you know, you don't you hate whatever job is available, it gives you the opportunity to explore different areas and learn about what you like. And also sometimes you gotta learn about what you don't like to uh to really figure out what's best for you with your career path. So, you know, if you can find anything as you're entering university or or even working at a restaurant is a great experience. Just find something and get to work, and you'll start learning about taxes when Uncle Sam is taking a chunk out of your paycheck. And uh that might cause you to start thinking a little bit more strategically about your taxes.