The Mark Perlberg CPA Podcast

EP 039 - Strategic Business Expansion, Capital Gains & Exit Planning with Austin Peterson

September 12, 2023 Mark
The Mark Perlberg CPA Podcast
EP 039 - Strategic Business Expansion, Capital Gains & Exit Planning with Austin Peterson
Show Notes Transcript Chapter Markers

Looking to grow your business and save on taxes? Austin Pearson, certified financial planner and Backbone Planning Partners' co-founder, can help. He's an expert in cost segregation, bonus appreciation, and more, using these tools to reduce tax and plan for the future.

Focusing on businesses earning $3-50 million annually, Austin shares ways to move income and growth from the corporation to the owner. He discusses profit-sharing in 401k plans, cash balance plans, and using trusts, especially charitable trusts and Delaware Statutory Trusts for 1031s.

We conclude with financial planning for small businesses. Austin details how Backbone Planning accelerates client growth with strategies like cost segregation and exit planning. The importance of consistent advice is emphasized, along with Backbone's alignment with its clients. For more insights, check the I Coos podcast by Backbone. Grow your business while managing taxes. For more on Austin and Backbone, visit: https://www.backboneplanning.com/

Mark Perlberg:

Hey everybody, welcome to the show. We are joined by Austin Pearson. He is a certified financial planner and he advises people on what to do with their business and grow their business. But I'll let you introduce yourself in your own words in a few seconds. We're going to talk to the business owners on the show about what you can be doing with your structuring your business, growing your business and other types of financial packages along the way. Austin, can you introduce yourself in 60 seconds or less?

Austin Peterson:

Yeah, you bet. So Austin Peterson, co-founder and financial planner with backbone planning partners. We're an independent RIA based in Las Vegas, with offices in Las Vegas and then Mesa Arizona. I've got a partner. His name's Landon Matz. We've been partnered for about four years, but recently made a big change with launching our own independent RIA rather than partnering with an outside RIA, and so we're excited to kind of see where that takes us. I've been doing this for 23 years. I've been married 25 years this past Monday and I have two kids 23-year-old son and a 20-year-old dog.

Mark Perlberg:

Awesome. So we talked to you. Know, obviously, most of our clients are entrepreneurial and one of the first things that we talked to them about and one of the reasons they approach us is because we can use real estate to reduce their taxes. But as tax planners and advisors, we can't just stop at cost segregation and bonus appreciation and finding tax saving opportunities. I mean, even if we can drive you into a $0 bracket, we still want to do some future planning because we don't know if we can keep you in a $0 tax bracket. So we want to plan for the future. And what I'm wondering for you is when you work with clients, what kind of things do you think about when you're planning for the future of these business owners and how they can create tax savings into the future?

Austin Peterson:

Yeah, so I mean there are a lot of different ways that things can be structured. So there are different trusts that can be used, whether it's gifting certain portions of the business ownership, for example, to an outside trust. We use a fair amount of qualified opportunity zone transactions to avoid or not avoid, used to be able to avoid some of it, defer capital gains and push that out into the future a little bit and obviously have tax-free growth of that investment as well. So we'll use those a fair amount as well.

Mark Perlberg:

We just did an interview on qualified opportunity zone funds and learned about captive qualified opportunity zone funds, which is pretty cool, and a lot of times they think with qualified opportunity zone funds you put your cash into something and then they put the shovel to the dirt and it takes a while to cash flow. But there are also opportunities to invest in qualified opportunity zone funds and where, if it's structured properly, you can start getting cash flow in the depreciation benefits shortly after you invest, which is pretty awesome if that's what you're looking for. Yeah.

Austin Peterson:

Another benefit that I don't think a lot of people understand is that let's take a round number. Let's say you put a million dollars into a qualified opportunity zone fund three, four, five years later, so they may have taken cash to build out whatever it is that they're going to build out apartment complex, hotel, whatever their storage units, whatever they're going to do but they will refinance that property and take cash out at that point. So they'll put some long-term financing on that particular property and, pro rata, the investors are able to take that portion of their initial investment back, which they can use to either pay the taxes that they're ultimately going to have to pay at some point right, they've got to pay them. They're due at the end of 2026, so the 2027 tax years when they're going to realize that. But they've got that money that's available to pay taxes. But they've also got that money available to invest elsewhere if they choose as well, and their cost basis is kind of staying in that investment. So it's just like pulling cash out of your own primary residence.

Mark Perlberg:

Yeah, and there's a whole world of capital gains strategies out there. But the thing I really think is interesting is you put your money in this thing for 10 years, then you pay no taxes on the exit too, and the capital gains on that exit may even be more than significant than the capital gains that you're deferring with the QoZ. But I mean, I was just talking to this, about this to someone else, on how, after 2026, we approach 2026, the deferral that'll be recognized in December 2026 is going to become less and less appealing as it becomes closer and closer. Still, we have that benefit of the tax-free growth, but what I'm hearing about as I talk to other folks is that we're hoping and expecting that they'll move this back so we can continue doing qualified opportunities zones past 2026.

Austin Peterson:

Yeah, there's actually legislation in Congress right now to extend it to 2028 and actually put back in that 10% step up in basis as well. So we're holding our breath and hoping that that and obviously all of the qualified opportunities zone funds out there are hoping that that gets put in the law.

Mark Perlberg:

So do you find with some of your clients that are using QoZs to defer taxes? What's in their minds is when the taxes come due, in 2026, have you begun to start having those conversations on what we're going to do to mitigate the capital gains when that becomes due?

Austin Peterson:

Yeah, so we're a planning firm first, and so, depending on each person's situation and what their need is for capital and so forth and so on, we will put different plans in place, whether it's, like I said, gifting strategies or using different trusts, whatever works for them, or obviously reinvesting it in a different business. At that point Everybody's kind of different in what they're trying to accomplish. But the biggest advantage even though there is the tax benefit, so you're deferring the taxes and then you've got that tax-free growth. Those are big, big benefits and I don't want to take away from that. But sometimes you have capital gains that you just weren't expecting. Sometimes you sell your business when you didn't expect to sell. Or sometimes you have a really good year and extensive capital gains that you weren't planning for. This deferral, even though that window may be getting smaller, the benefit is that it still gives you some time to actually do some planning.

Mark Perlberg:

Yeah, that's something I didn't really think about, which makes a ton of sense, because sometimes people are forced to sell their business or they're given an opportunity they can't refuse and there's not enough time to plan. But now that you have this QoZ first off, you can put your cash into the QoZ 100 in days after the sale, even if the year has passed, so you're not under the same amount of pressure as you are with the 1031. You can take the principal and do whatever you want with it and maybe that principal will help invest in things that will mitigate your tax liability when they are due. But also, if you have two years to do some planning you likely will be, if you didn't already you'll likely be able to create some sort of strategy when that capital gains is recognized especially. You have that much time to prepare now.

Austin Peterson:

Correct. Yeah, it may just come down to something as simple and I say simple and take that with a grain of salt but as simple as tax loss, harvesting of other investments to be able to offset that as much as you can later too. So there are plenty of ways to plan around it, but having time on your side is a huge benefit.

Mark Perlberg:

So let's talk about trust here. So I have spent a lot of time diving down some rabbit holes of trust strategies and there are worlds of ambiguities and people disagreeing on what you can and can't do, and there's a whole world of stuff out there and I'm curious to know a little more about some of the strategies that you're doing with trust to reduce the client's taxes or for exit playing. Fill me in on some of the stuff you're doing.

Austin Peterson:

Yeah so first of all, we don't give legal advice. We're not attorneys, and so I just want to make sure that that's clear. We're not establishing trust, we're not truly giving legal advice, but there are the abilities to have certain types of trust, whether it's trust in different specific states that give you, whatever it may be, there are certain trusts in the state of Alaska, for example, that are beneficial from a conservation standpoint or oil and gas drilling standpoint. There's different things that you can do to carve out portions of your estate into a separate trust, in addition to just your regular estate planning stuff or your putting stuff using the AB provisions of a trust to be able to make sure that you're using the full exclusion which is also set to sunset at the end of 2025. So there's those types of planning opportunities that people don't necessarily think about and, especially because that exemption is so high right now, a very small percentage of the population feels like they're going to be subject to estate taxes. But if you're young and you're building wealth and you've got a business that's continuing to grow and you've got a lot of years ahead of you not to mention it may snap back to essentially half of what it is there's a reason to plan early and then amend as time goes on.

Mark Perlberg:

Yeah, I think that it's like five million right that you don't pay any estate taxes on. Is that correct? I think it's around five million. It's actually double it's more than double that.

Austin Peterson:

It's over 12 million right now. It's set to snap back to about six and a third million at the end of 2025.

Mark Perlberg:

Gotcha. So by creating these trusts for estate planning purposes, it's going to be a hedge against future legislation that'll limit the exemptions on your states, and that's an area that I usually, when I get asked about this stuff, I realize that that's a little bit outside of what we do, so we usually leverage experts like yourself, especially when it comes to estate planning. Do you also use trust for tax repurposes outside of estate planning?

Austin Peterson:

Not a ton. It's not something that we typically get involved in, but I know that there are strategies that can be employed and we would rely on specific legal experts to weigh in on that in that instance. We've got a couple of clients where that's gonna start to become more critical as it stands now whether it's offshore trust or different things like that where we've got some clients if you're building a company, that's gonna be worth, say, I don't know, 100 million or more than those types of strategies come into play and we've got a couple of clients that are on that trajectory at this point. But to this point we haven't deployed those strategies.

Mark Perlberg:

Yeah, we started. We're now just now starting to use some strategies involving irrevocable trust when it comes to some charitable structures, and they're really powerful with creating some charitable tax deductions that give you access to your cash. You have a charitable giving trust. That's been really helpful for some of our clients, and we're now considering one area that's a little bit more established and easier to find information on is the Delaware statutory trust as an alternative for 1031s. And then, in addition to that, I have some clients that are selling their businesses and moving to full-time real estate. So if you're planning to move to full-time real estate investing, you're likely to drop to a $0 adjusted gross income and have so much depreciation that you may even have a negative amount of AGI. So we can do an installment sale. Or let's say, maybe we can't do an installment, so we do a deferred sales trust. We can break out that the recognition of your capital gains over time and maybe we can push it into years when you're in the $0 capital gains tax bracket.

Austin Peterson:

Yeah, there's no doubt about it, and everything that you just mentioned are our strategies that we would employ in a bad conversation with certain clients about as they near that exit strategy. I mean the Delaware statutory trust. Yes, it is a trust right, but we typically view that as an investment vehicle, right.

Mark Perlberg:

So, even though it's, technically a trust.

Austin Peterson:

We're not setting up that trust individually for the client. We're typically allowing them to buy into a Delaware StratStory Trust as an investment.

Mark Perlberg:

What do you think is the biggest mistake? That you see clients in your, in the demographic of clients that you serve? What do you think is the biggest mistake that you see in making?

Austin Peterson:

Honestly, the biggest mistake I see is the failure to plan right that. The reality is there's all these business owners throughout the country and, like I mentioned at the beginning, that is who we work with, and typically it's a business that does between three and 50 million a year in revenue. That's kind of our sweet spot right. Well, there are a lot of businesses that do between three and $50 million a year in revenue that have these owners. That make good money, they're comfortable, they built a great company, but they don't have a lot of assets. They don't consider themselves rich or wealthy because all of their wealth is inside of their business, and so they just don't really plan for it. They're not doing anything to move from the business balance sheet to the personal balance sheet as time goes along, and so that's probably what it comes down to. Is that failure to plan and an understanding of let's build wealth on both sides of the table, so to speak your personal and your business balance sheet. And the added benefit to that is, when it comes time to sell that business, you're in a much better negotiating position because you don't have to sell that business to realize the cash that you need to retire, because you plan for your own into financial independence outside of your business.

Mark Perlberg:

Wonderful. That's you know, and I'm glad that we're having this conversation because we haven't had much of this conversation with some of our other guests yet. This is a topic that I think a lot of our clients would appreciate. So we're the strategies that you're using to shift some of this income and growth and value from the LLC or CO Corporation into the owners.

Austin Peterson:

Yeah, so I mean. Some of it just comes down to taking additional distributions or taking advantage of the profit sharing component of your 401k plan or using a cash balance plan. You know you're essentially creating your own pension and you've got the ability to shelter hundreds of thousands of dollars a year into this personal pension plan for yourself, and most business owners don't know anything about.

Mark Perlberg:

Do you see? So I've been my mind when it comes to tax planning. I like to be creative and explore all sorts of possibilities, and my mind may go into a lot of land sometime, but I really want to present opportunities more often with our clients, creating spin-off entities, and perhaps the spin-off entity could be a passive income generator or maybe a C Corporation and or maybe even a captive insurance company. Captives are common, but right now we're a lot of our clients just because the typical demographic of clients are in their mid 30s still kind of finding their way. We have some other ones that we're doing this with. The majority of them aren't quite ready for that level of sophistication. What have you seen work, if anything, for creating additional entities and spin-off entities and new structures in the business for part of their long-term tax planning.

Austin Peterson:

Yeah, most common is just a separate entity to own the real estate for the business. I see that as the most common way that's used. Other than that, I mean, you're certainly more of an expert on this and I'll just kind of give you kudos a little bit, because the reality is I've been doing this 23 years and, for your listening audience and your clients and prospective clients for you, I'm here to tell you that most CPAs do not do tax planning. They're essentially preparing what you bring to them and saying this is what I can do to help you save taxes now, rather than what can we proactively do to help you save taxes into the future and how can we use unique planning strategies that give us the ability to do that. So just the fact that you're bringing this up and having this discussion tells me that you're different than about 90% of the CPAs out there.

Mark Perlberg:

Awesome. Some other things that I'm thinking about here when we think about planning for the future with these clients. Do you find that? Well, one of the things I want to point out for our audience first is this is really important when you talked about earlier is having a separate LLC for your rentals or for your real estate. So if you have an office for your S corporation, you do not want that S corporation to own the real estate because it creates challenges when it comes to capital gains planning and less flexibility. So what you got to do is you become a landlord to your S corporation. Your S corporation pays you rent and you can do a grouping election. So you still do cost segregation studies, accelerated depreciation, get massive deductions to offset your income from the S corp and even after that point, let's say, you still want to create tax savings and the depreciation offsets the revenue. Make that revenue as much as you can so we can activate that depreciation to offset the rental income and maybe do a triple net lease. There's all sorts of ways where we look at the numbers and what the expected depreciation costs are and make sure that you're fully using all the possible deductions on that real estate that you own. But so often do we see people make the mistake of having the rest corps own the real estate.

Austin Peterson:

Yeah, I agree with you 100%, because just the ability to charge yourself rent and have that give you the ability to capture that depreciation and still be able to do the cost. Segregation studies and all of those things that you mentioned are super important. But at the very very least, think about when it comes time to sell the business. Maybe you want to sell the business, but you can hold on to that real estate and set up a long-term lease with whoever bought that business from you and still generate passive income for yourself after you've sold the business. I mean that right, there is reason enough to own the real estate and to own it in a separate entity.

Mark Perlberg:

Yeah, and one thing when it comes to buying and selling businesses that we see a lot of people make mistakes on is they don't talk to enough. They don't talk to us or enough of a professional before signing the contract. So some people don't realize that there's a difference between a stock purchase or sale and an asset purchase or sale, and usually the buyer wants it to be an asset purchase and the seller wants it to be a stock purchase because of the depreciation and the depreciation recapture of those assets.

Austin Peterson:

Yep, yep, and the capital gains treatment, all those sorts of things. So you're absolutely right. You got to understand the benefits and the drawbacks. And the reality is, if one party wants it to be an asset sale and the other party wants it to be a stock sale, that doesn't work right. I mean, you're still going to have to come to an agreement and make it work, but if you do some planning along the way, understanding that in most instances you can correct me if I'm wrong, but in most instances it's going to end up being an asset sale, and so you plan for it accordingly throughout the year so that it doesn't come to bite you tax-wise in the end.

Mark Perlberg:

Yeah, we had an interesting interview with another syndicare my episode on an alternative asset investing with Jeremiah Boucher and they were purchasing real estate from an older investor who had the real estate in an S corporation, and this because they didn't always have LLCs as flow-throughs and these guys were old school so they had the LLC and it was an S corporation I think it was a C corporate with an S election, anyways. So the stock got a step up basis because it was inherited. So now there is some, to my understanding and I've never done this, but there might be some flexibility where they found the way to have the best of both worlds, where they were able to purchase the real, the stock, but make some sort of election that they discussed. I don't remember exactly what they did, but they found a solution which is just so important. Why it's so important to really dive into the minutiae and work with an expert on these things when it comes time.

Austin Peterson:

Yeah, and I would actually add to that that it's important to work with a team of experts and not only a team of experts, but a team of experts that collaborate and coordinate together. Because here's the thing I know enough about your world to be dangerous, but I don't know all of the ins and outs, and so I can make a point to a client and say we may want to consider this particular strategy, and then you're sitting there at the table with me and you say you know what? Yeah, that does make a whole lot of sense. However, you may not be factoring in this negative aspect of that, or you may not have factored in even the more positive aspect of that, and so that leads us collaboratively and together, leading to the best outcome and solution for our clients. Because most of the time, our clients are working with you, they're working with me and they're working with their legal advisor, but they're doing so separately and in a vacuum, and if they did it all together, sitting at the same table together, everybody's going to come to the best possible outcome for the client.

Mark Perlberg:

Yeah, and you know it's nice when you're able to put people in the same conversation the financial planners, exit planners, attorneys and accountants to find an optimal solution. And I can only get especially like. I always get asked questions on banking and asset protection and I can only give a high level. You know examples and understandings to them of what they need, but you really need to get the best outcome we can have. A collaborative environment is always really optimal in those situations. Now what I'm wondering for you is how has it been when you get to collaborate with the attorneys and the CPAs? What are some of the strategies you do to make sure that everybody's on the same page, working together?

Austin Peterson:

Yeah. So I mean, forgive me if this sounds offensive to you, but when we work with our clients, we typically say you know, we expect to be the quarterback of this team of advisors, right? And so our clients we tell them upfront you need to be okay with us letting you know that your advisor, in whatever area your CPA, your attorney, your state funding attorney, your business attorney, whatever if we tell you that they're not up to snuff and they're not doing a good enough job or don't have enough expertise for you, that you've got to be comfortable letting them go and finding somebody else, right. And so that's where it starts. They kind of put us in charge in that quarterback seat. The business owner is there. They're the ones who are ultimately in charge, but there's got to be one person who's kind of leading, and then we lay out why this is beneficial and most of the time everybody understands it, gets it. They kind of check their egos at the door and they work towards the good of the client. But there have been times over you know my 23 years of doing this where, whoever it is one member of the team, their ego is too big and they don't want to play that game or they want to be the one who's ultimately in charge.

Mark Perlberg:

Because and what I find also is the bar is pretty low for a lot of tax accountants who and you know especially if these are people who are working with tax accounts that maybe the only reason they're working with them is because they were their great grandfather's tax account or they were their friend from high school and maybe that was appropriate when they were a schedule C doing maybe $150,000 a year. But what I find is a great challenge for a lot of entrepreneurs is when they get into that seven figure and eight figure revenue model. They have outgrown their advisors. They still like their advisors, they have a personal relationship with their advisors. They love their family, friends, they are very connected. But the fact of the matter is that old accountant is used to serving people you know making $100,000 and $250,000 a year and they're not designed to advise on these types of complexities and they're not going to have the capacity to learn it just for one client. So they have to come to the realization that as they have evolved, so as have, as as they have, they become to the point where they've outgrown their old team of tax advisors.

Austin Peterson:

Yeah, yeah, I mean I've got a perfect situation where I can share an example of that. I've got a client who worked for a startup. He wasn't a co-founder but he was early on with this startup and so he had accumulated some you know some grants, some RSU some you know a lot of different things along the way. And this company is not public. But they were offering for sale a portion of the company to a private equity group. So he was given the opportunity, unexpected to him, unplanned for by him, to be able to sell a certain number of shares. Well, the number that he was getting from that is in you know mid seven figures, number right, and he was a well compensated employee throughout this period of time, making $300,000, $400,000 a year. But then, you know, you've got 10 times that coming in stock grants with essentially no cost basis at all. So he's got a huge capital gain issue and the CPA had no idea how to mitigate that. He met with the CPA, paid the CPA you know his hourly rate to get advice from him, and the advice that he was given was put the money in a safe place earning some interest until it's time to pay the taxes. Literally, that was his advice and that's what started our engagement to start some planning for him. And then, you know, we got to tax time and that CPA was still around and we were just doing some simple backdoor Roth contributions and the CPA didn't know what that meant, filed it incorrectly. We had, luckily he'd sent us like a view of it to look at it before it was filed and we corrected it for him and you know he filed it. Needless to say, that client now works with a different CPA because it was exposed that that CPA did not have the level of expertise that he now needs.

Mark Perlberg:

And that doesn't mean that they're not great CPAs. They may be wonderful for what you used to be. There's different business models and you know it's hard, for sometimes it's hard for the CPA to let go of their clients and clients let go of their CPAs.

Austin Peterson:

Yep Part of life?

Mark Perlberg:

Yeah, so do you have, without you know, without having to dive into too many specifics, but can you give us some examples of maybe some of the, some of the plans you've implemented and some of the the story to some stories of some of the things you've done for your clients that have created significant savings?

Austin Peterson:

And what aspect from a tax standpoint? Yeah, let's talk about taxes. From a tax standpoint, qoz is probably the number one. That's where we've gotten the biggest tax buy because it's typically a larger capital gain transaction. We'll just take a portion of that. We've got a client that just fairly recently is still within the 180-day window for QoZ. Unexpectedly, as a minority owner of a business, that business was sold. Now he was able to roll some of his equity into the new entity, but he also received a significant cash payment in the 8-figure range. We've had to do what we could from a tax planning standpoint to offset that, because we didn't have any time to plan for it. It was completely unexpected for any of us. It was breaking down for him what using a QoZ would do in the short run in addition to the long run. Given the fact that he's only 30-something years old mid-30s maybe he's got a long runway. We're able to take a 7-figure number, put it in a qualified opportunity zone, save him multiple 6-figures in taxes today, but then also have that grow over the next 25 years and have the growth on that be tax-free. That's a tremendous amount of tax savings for that individual.

Mark Perlberg:

Yes, especially when you think about this. You can take the money out tax-free, but you don't have to wait until you're 59.5 to do it. Another strategy I like to combine with a qualified opportunity zone fund is, if that client has rep status, not only are we deferring the capital gains, but that QoZ will eventually run a cost segregation study and then the depreciation could be used to offset other sources of income we go from without a tax plan, paying taxes, to actually put it in a vehicle that pushes back the taxes and creates tax savings. In certain circumstances we may even be able to create a passive income generator, a pig and now we have passive income that can be offset by the passive losses created from the cost segment that qualify opportunities zone fund, which gives you, in addition to the cash flow from the QoZ. If you get a REFI check from the QoZ, you also have some tax savings that you can reinvest to eventually pay that tax bill, not to mention that you get your principal back and you don't have to put the principal into the QoZ. That could be used to do other things that reduce your taxes and build wealth.

Austin Peterson:

Yeah. Yeah, it's interesting you don't hear the term pig pal very often, the way that you just use it. You didn't use it in that concept. You said pig, but then you didn't add the pal to it, even though you talked about it. It's just not talked about as often as it used to be, I feel.

Mark Perlberg:

Yeah, I really love talking about these things. I think that at this point in the conversation and in the recording, the majority of our listeners are likely going to be either really sophisticated investors or more likely to be other accountants that listen to the episodes.

Austin Peterson:

Yeah, we may be talking at two Ival levels. I guess maybe what I would respond to that is it's important to have somebody who's helping you plan. Here's the thing. There are online engines for investments. Most people, when they think of a financial planner, they're just thinking of somebody who's going to advise them on their investments. Some that is the case. Some are definitely just investment advisors, and some of them are quite good at it and still worth the additional money. Versus a Vanguard or a Betterment or a Wealth Front or whatever it is that you're looking at for just your own investments, the planning is what gets missed. You don't know or understand, or let me just say it this way you don't know what you don't know If you don't have somebody who can help you with that planning and realize that there are ways to not only offset taxes today but in the future, build wealth today, build wealth in the future. Reduce taxes today, reduce taxes in the future, eliminate taxes altogether in the future. We haven't talked at all about the power of using a life insurance policy to have access to tax-free income in the future. Life insurance gets a bad name and a lot of investment advisors won't even talk about it, won't even mention it because it's costly. There are high expenses inside of a life insurance policy because of the cost of the life insurance itself. If it's structured appropriately, the value that a life insurance policy can bring in terms of tax-free income in the future, and there are ways to even augment the ability to put extra money in there by financing the premiums or whatever. There's so many different strategies that can be deployed that if you have a sophisticated planner to help you deploy those, you're going to be miles ahead versus just trying to figure it out on your own.

Mark Perlberg:

Yeah, we've been talking about some of these topics with our clients as well, where, with 100% bonus depreciation and maybe the client and their initial push to invest in real estate, they may find themselves in a $0 tax bracket. That's where a lot of the guidance stops from a lot of accountants. It's good that they know what cost segregation is at this point, but if you're in a $0 AGI, you don't want to let a good tax bracket go to waste. How do we take this a step further when are we doing with our cash? Do we have the opportunity to do at least some of a raw conversion, or maybe we can take advantage of the $0 long-term cap gains bracket? What else is available for us and where are we doing with our cash so we can create future wealth and savings? We also see clients where they're so excited for their savings with the short-term rentals, their newbie investors they're just so happy to have the savings. What they find is they get overwhelmed with their real estate. They can't buy anymore, so they're unable to create those massive losses. Then their real estate may operate at a loss. You get this tax savings, but what are we going to do to make sure that we have wealth in the future, as well as tax savings.

Austin Peterson:

That's the important of diversifying period Just because you're a real estate investor doesn't mean that you shouldn't have assets outside of real estate. You put together different stock and bond portfolios, alternative strategies, oil and gas. There's so many different ways to invest in other ways that will generate long-term wealth, even just the Roth contribution or the Roth conversion that you mentioned. If your AGI is low enough to qualify for a Roth, why wouldn't you put money in a Roth? Even if it's not, there's the ability, through a backdoor Roth contribution, to do that. Not every tax advisor is even aware of how a backdoor Roth contribution works. Essentially, what you're saying is I make too much money to qualify for contributing to a Roth, but there's the ability to contribute to a non-to a traditional IRA that's non-deductible. If your income's too high for a Roth, it's also too high to get a deduction on your taxes for contributing to a traditional IRA. You make a non-deductible contribution to your traditional IRA and then you immediately convert that to a Roth. There is no taxable gain because it was a non-deductible contribution to begin with.

Mark Perlberg:

Yeah, I love it when we can do that and really set our clients for long-term success, because we don't know what's going to happen in the future with the tax brackets, the bonus depreciation. Your rentals will eventually become more profitable. Who knows what kind of success you'll have at your job or capital gains events. We're doing our best here and we're forcing our clients to meet with us for tax planning, even if they don't want to deal with our nerdy, our tax geek selves talking to them, because we really got to make sure and give them that perspective that it's not just about reducing your taxes this year. We have to look at the big picture long-term tax savings, not just for you but for you and your family and the people who are going to inherit your assets.

Austin Peterson:

Yeah, for me it's refreshing to hear a CPA say it that way, because we will say to clients all the time you can't let the tax tail wag the dog either. Just because we can get to a zero AGI doesn't mean that we should. We've got to plan comprehensively for the long-term, not just based on tax savings.

Mark Perlberg:

Some of the things that we're doing with that, when we think about that as well, is when we do our cost sags. We may opt out of bonus depreciation on the five-year life property and spread it out over five years because we don't know how much more real estate this client's going to buy. Let's say the client's down to a $0 AGI. Then we don't get to use our standard deduction. We lose a $26,000 deduction. We might want that deduction from the depreciation more next year. Sometimes we may even extend the return out and extend the partnership returns out until we understand what is the activity in 2023 when we're filing 2022. We're considering both years and the tax impacts before we even file them, I think it's a great way to look at it. Yeah, sometimes it's great it keeps us busy thinking like this, but it is fun to run the scenarios with the clients and just thinking about the resourcefulness and our abilities to make these decisions as we collaborate with the team of advisors around our clients.

Austin Peterson:

Yeah, absolutely. I mean, it's fun for you to run the scenarios. You mentioned the business owner or the client. It's probably not as fun for them to run the scenarios. What they want from you is what's the best solution for me today and in the long run. If you ran the scenarios behind the scenes and you presented to them look, we ran this, we looked at this, this is your best outcome. That's what a client really wants to do.

Mark Perlberg:

Yeah, absolutely, it's a shift topics a little bit. I see the Oculus in the background. What are you doing with the Oculus?

Austin Peterson:

Yeah, not a whole lot actually. That was a family Christmas present that I thought was going to be a huge hit. That didn't end up being as huge of a hit as it was. I noticed it a while back sitting in the loft at our house and I thought I'm going to take that to the office and charge it up and see what's on there and what we can use. I think that there's going to be some opportunities to use it in the future. The whole reason it came to mind is somebody who was on my podcast, tycoons of Small Biz, is a general contractor, commercial contractor. He was talking about the ability to use that with engineers in another country to be able to look at plans together and those sorts of things. It was just really more of an intrigue than anything. I use it for Beat Saber and different games like that is all at this point.

Mark Perlberg:

My favorite game is Pistol Whip. It's amazing.

Austin Peterson:

I have not played that one.

Mark Perlberg:

You feel you're in a Quentin Tarantino movie and you're just going down and shooting people super fun and you're dodging the bullets. There's another game called Thrill of the Fight that I'm crazy about and you'll be breaking a sweat in a few minutes. One year for tax season, I purchased four of them and gave them to my team. To help break out a busy season, we had a team building event where we're all in the same room and we're cooking and collaborating to make these dishes in a game. So much fun and you really felt like you were in the room with everybody who was together. It was super fun and amazing.

Austin Peterson:

That's really cool. I definitely have not used it to its maximum potential.

Mark Perlberg:

I wrote it all off on our taxes. It was an ordinary, necessary expense for that business team building activity.

Austin Peterson:

Amen.

Mark Perlberg:

Yeah, so some things I'm also wondering are what is your? So I see you have a lot of initials left to your name. What are your favorite resources for learning more about your craft and refining your skills and keeping up to date on things?

Austin Peterson:

Yeah, so probably the Financial Planning Association and the CFP board is where I get the most information the Exit Planning Institute as well. We'll gather a fair amount of information there on an ongoing basis, and so we'll go to different conferences that are different than maybe what most financial planners would go to. We've got one coming up here in November, I think it is. We're going to go to the Main Street Summit, and so that one's not focused on financial planning at all, it's really just on Main Street businesses and what they're doing, what they should be doing. What's new in Main Street businesses? What's new in growth through acquisition, those sorts of things, the things that our clients are dealing with day in and day out. It's really what's most important to us.

Mark Perlberg:

Awesome. Now, that's not with Mark J Kolar, is it? Because I know his brand is Main Street?

Austin Peterson:

Uh, you might be right. My business partner has interacted with them a lot more than I have, but I'm not positive if that's the same person or not.

Mark Perlberg:

Yeah, he. Um. You know I heard that if you put the middle initial in your name, it makes you sound smarter. But my middle initial is J and whenever you search me you already get a lot of Mark J Kolar stuff. So I decided not to put the J in my name because of him.

Austin Peterson:

Yeah, well, my mind's just in there because, uh, austin Peterson both names are fairly common nowadays. When I was growing up, austin was not a common name, even though it's actually a fifth generation family name for me Now it's six with my son, and so you know it's been around for a long, long time. But nowadays, kids in their twenties there's a bunch of people named Austin. And then, on top of that, um last election cycle, there was a candidate named Austin Peterson and there's also a comedian.

Mark Perlberg:

So, um, I imagine that gets tricky. So how, if at all, are you using artificial intelligence in your business?

Austin Peterson:

Yeah, so kind of the same way that you're using it right now with with, uh, this recording right. So you've got the AI running in the background to capture the notes and those sorts of things. We're starting to deploy that in our client meetings and recording those and allowing that to capture the notes and the follow-ups. That's. That's brand new Um. Other than that, you know, maybe a little bit in the in the trading and research side of things, but it's something that we're just kind of scratching the surface on Um um. One other thing, maybe with with log posts or different things that we write. We'll use that to kind of start the process of writing what it is that we're trying to write for our newsletter or whatever the case may be.

Mark Perlberg:

Awesome. And so, before we close out the conversation, uh, I'm curious, do you have, can you tell the client, tell the audience, uh, where they can learn more about you? And if you have any action, any call to action, uh, on anything else that you maybe want our audience to do or look into, here's your chance.

Austin Peterson:

Yeah, appreciate it. So we can be found at backboneplanningcom. Uh, I'm very active on on LinkedIn. So just Austin Peterson CFP Um, if you search Austin Peterson CFP on LinkedIn, you'll find me easily. We've got our own you know webpage there and then our podcast, I coos, a small biz. We've recorded about 160 episodes. So when we have content out there where we've interviewed essentially 160 different business owners and at them talk about their businesses, their successes, their failures, and so there's a decent amount of content to consume there, um, we're a fee based financial planning operation, so a lot of business owners don't have a whole lot in terms of investments to manage, and so a lot of investment advisors or financial advisors are are honestly not really that interested in working with business owners until they're close to selling their business and have assets to manage. We're just the opposite, and so most of our business owners, um, either have very little in assets or no assets at all outside of their business, and so they're paying us an ongoing fee on a monthly, quarterly or annual basis for our advice, and that that's us meeting with them on an ongoing basis to help them look at their books. What can you do to to be more strategic in your business. How can you grow your business? How do we grow your, your profits and keep you know without maybe even growing your revenue? Whatever the case may be, what we can do to help the business owner grow their largest asset, which is almost always their business, that's our differentiator is that is that we we're on the same side of the table as as you. We charge for our advice the same way that that you could do, as a CPA or an attorney does, and and we're there to to meet with you on an ongoing basis to make sure that you're achieving your goals.

Mark Perlberg:

Awesome. Austin, thank you so much for this conversation. Really appreciated it and hearing your insight and I'll put all this in the show notes and I'll probably check out your podcast as well and talk to you about some exit planning in the future as well. Awesome, thanks for having me, mark. Awesome. Thank you so much.

Business Growth and Tax Savings Strategies
Estate Planning and Tax Strategies
Tax Planning for Business Owners
Collaboration and Expertise for Optimal Solutions
Financial Planning and Virtual Reality
Financial Planning for Small Business Owners