The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 48 - Tax Efficiency for Retirement & Lifelong Financial Growth w/ Steve Jarvis
Discover the keys to reducing your tax bill and enriching your retirement with tax expert Steve Jarvis, CPA. This episode is a goldmine of strategies for everyone, from forward-thinking millennials to those nearing retirement. We delve into proactive tax planning and its potential to significantly lower your tax burden over time. Steve shares expert advice on leveraging health savings accounts and mastering backdoor Roth contributions. Our discussion goes beyond numbers, focusing on smart life choices that complement tax efficiency for long-term financial growth.
Join us as we explore unique strategies in retirement investing. Learn how to transform your Health Savings Account into a financial powerhouse, and how to use your Roth for real estate investments. We discuss essential topics like required minimum distributions and tactics to reduce taxes during Roth conversions, aiming to create a portfolio resilient against IRS challenges and supportive of your retirement dreams.
We conclude with insights into the gig economy and its tax advantages. If you're juggling a W2 job and a side hustle, we reveal how to harness significant tax benefits. From Airbnb to Turo, we cover deductions that can substantially lower your tax liability. Beyond immediate benefits, we emphasize the importance of detailed, personalized tax planning as a foundation for wealth preservation. This episode is a must-listen for freelancers, consultants, or rental property investors, offering a roadmap to use the tax code to your advantage in wealth building.
To dive deeper into Steve Jarvis's insights, email steven@retirementtaxservices.com. If you're interested in becoming a client with Mark Perlberg CPA, or know someone who is, reach out to info@markperlbergcpa.com. Join us on this journey to financial empowerment and smarter tax strategies!
Welcome guys to the podcast. I am joined by Steve Jarvis, cpa. This is gonna be a great tax nerd out session as we talk about retirement account strategies. A lot of my clients are in the 30s and 40s and they're not quite thinking about retirement yet, and Steve probably serves people who think about retirement a lot and who many who are a lot closer and, while you should always be thinking about this stuff, this is why I wanted to bring in someone who has these conversations on a regular basis Talk about what you can, should and will be thinking about regarding your retirement, retirement and how we can create most opportunities for you in navigating the tax code. Before we jump into this, if you know anybody who can use our services or who wants to join our team and we are constantly seeking tax professionals email info at mark pearlberg, cpa comm. Alright, let's get into a. Steve, introduce yourself in 60 seconds or less.
Speaker 2:Steven Jarvis CPA. I very proudly consider myself the least boring CPA that you know I knew on day one of public accounting. I did not fit the stereotypes, but it's still a good skill set I have. So here I am talking to people about how to make sure they're minimizing their tax bill Over their lifetime. I'm all for paying what you owe, but there's no point in leaving the IRS a tip.
Speaker 1:Yeah, so you know when I was first the public, public accounting man, that that that was some rough Selling your soul. Just Just change, just take, take this piece of my life and just you own it Like they own your life. While there they dictate when, especially when you travel for work. They would dictate how much I worked, where I worked, where I lived. It was like you know, it was like some weird form of slavery, like it was like white collar slavery, it's. I'm so glad that we were passed that point in our career.
Speaker 2:Yeah, absolutely. I remember my very first internship. It was eight weeks and I traveled for six of those weeks and, like on day one, when they told me that was gonna be the case, like they didn't, they didn't apologize. It wasn't like, ah, steven, this is gonna be really rough, but you got this. It was just like really matter of fact, like this is what everybody does, just suck it up and do it.
Speaker 1:Yeah, so it's wonderful that that we have the opportunities we have now and you know I work at home with my cats and. But let's, so, let's, let's, guy, let's dive into some of the things that you're doing now. Yeah, on the retirement side and and just general planning, so where some of the conversations you're having with some of your clients?
Speaker 2:Yeah, so the, the company I created a couple years ago.
Speaker 1:It's called retirement tax services, so that obviously there's this emphasis on hey, sorry to interrupt, but real quick, if you or anyone you know is interested in using our services or joining our team, email info at Mark Pearlberg, cpa. Comm. That's info at Mark Pearlberg, cpa. Comm. All right, let's get back to the show retirement.
Speaker 2:But it's not that we only work with people in retirement. It's really that we want to have long-term conversations with people. So I actually work with a large number of taxpayers who are in their 30s and 40s. They're high earning professionals, and so the conversation, to be honest, it isn't how do we set you up for retirement, it's it really is centered around what. What are the lever levers we can pull to minimize your lifetime tax bill? Because even for people in their 30s and 40s which I fall in that bucket I'm not like thinking, waking up every day, thinking about when I retire someday. I would love opportunities to not have so much of my hard-earned money go to the IRS, though.
Speaker 1:Absolutely. And then it grows and compounds. I mean, we were just talking about this, we had a conversation with a financial advisor and you want to do everything to minimize your taxes but also take your tax savings and grow in a smart way. That's tax advantage, absolutely. What do you think is the most common mistake you're seeing, or misperceptions you're seeing, in the people you serve?
Speaker 2:That's a great question, the very, the very first one we come across and this might not be as relevant for your audience, because they're listening to you talk About the stuff all the time but there's this huge misconception that there's just nothing you can do about taxes, that taxes just kind of happen to you. You get to the end of the year, I file my tax return and I move on. So that's always. The first step is getting people to think proactively, to say, okay, if we have a plan and we Consistently execute on that plan, there are things that we can Legally and morally do within the tax code to minimize the amount we pay over our lifetime. And then that's really the next piece that goes into it is that trying to get people away from thinking about how do I get a giant refund right now and then, but really more focus on how do I set myself up for the long term.
Speaker 1:Wonderful. Where are some of those strategies?
Speaker 2:You know. I mean, we start with the basic stuff and we build from there. It's okay, what? What are those things that are available to me? So I'm talking to mid-career professionals. We're looking at hey, do you have access to a health savings account? Are you taking advantage of Retirement accounts through work and any matching? What are those? What are those benefits there? If you're moving past that, we look at things like backdoor Roth contributions. We look at the other things that they're interested in and wanting to be involved in, like real estate or rental properties. It's the really the approach that I take with people is let's make good life decisions and then figure out the most tax-efficient way to go about them.
Speaker 1:So the HSA we we talk about it briefly with our clients. It's you know, I Know, depending on the client circumstances it may not be the lowest hanging fruit and it may not be the sexiest, but certainly the HSA can do some really amazing stuff. So where's some of the the conversations and things you discuss with your clients on the HSA?
Speaker 2:Yeah. So for HSA's and really for a lot of the things I talk about, because you're absolutely right, most of this stuff include the HSA's. They aren't super sexy, they don't make great tiktoks Because it's all about the long term. But the first thing I do is most people can do Can multiply by 10, and so instead of focusing on, okay, your HSA, you can contribute.
Speaker 2:But let's say, your marriage, you contribute about eighty three hundred dollars this year if you got family coverage, and so then, depending on your tax bracket, you're saving maybe two grand, three grand in taxes, and that's not the most exciting thing to people. But then we say, okay, what if you did that for the next ten years? And now we're saving 30 grand in taxes and oh, by the way, if we can use other Cash flow to pay those medical expenses along the way, we can invest that it can grow tax-free. Next to taxes, medical expenses are one of the biggest expenses that people have later in life, and so how amazing would that be is if you had a tax-free bucket that you got a tax deduction for. Creating that was a few hundred thousand dollars, and you never had to worry about being out in the cold because you had an unexpected medical procedure.
Speaker 1:Yeah, so so the HSA. Here you're seeing the best of both worlds.
Speaker 2:Mm-hmm.
Speaker 1:Right, you get the tax deduction upfront, like you would. A 401k or sep IRA or traditional IRA yeah. But unlike those vehicles where you're eventually gonna be paying taxes at your marginal rate, you're gonna be not paying taxes when you take the money out. So now the money comes out like in, like a 401k and out of your pocket and then you take it from the retirement account and use it is almost like a Roth, so it's like a raw. If a Roth IRA 401k had a super baby, yeah, this would be the HSA from a tax perspective.
Speaker 2:Yeah, the other thing I really like about it is that we're gonna get the most tax advantages from it if we end up using it for medical expenses. But I'll get the question of well, hey, I'm gonna live a healthy life like what if? What if I get older and I don't need all this money for medical expenses? Well, great, we're not. We're not. We don't lose. We might have to pay a little bit more in taxes than be able to use on medical expenses and use it tax-free, but then it kind of turns into like an IRA or a 401k where we still got all of this tax deferred growth. We have this tax advantage to account, but we're not gonna lose out on it just because we didn't have a big medical expense.
Speaker 1:And, unlike the IRA, which, like a traditional IRA, you can't reduce your tax bill with putting the money in traditional IRA once you reach a certain income threat the HSA. That's not the case.
Speaker 2:Yeah, there's no income limitations. Oddly enough, there's also no requirement to have earned income. I'm not really sure what situation that would put you in, where you don't have earned income but you want to fund an HSA. But yeah, there are some unique aspects to it.
Speaker 1:Have you ever had conversations on determining the packages in the provider to allow contribution into the HSA with a high deductible plan?
Speaker 2:Yeah, it's not something that I spend a whole lot of time on because I'm not personally a medical professional and I do always provide that caveat. Again, I said it before we need to make good life decisions and then figure out the most tax-efficient way to do it. So I definitely run across people it's usually more often clients with kids who and they've got kids that have complicated medical conditions where they know they're going to have really high medical bills every single year, and in those situations it's probably going to make a lot more sense to pay for the gold tier status medical plan that has a low deductible, that is covering everything that you're doing, that has a really high premium. That's going to make you ineligible for that HSA. But for a lot of people I just encourage them to take the time Back to your question about what people miss, and one of those things is some of these things do take a little bit of time on our part to just say, hey, how does this fit?
Speaker 2:And so I remember when I went through this personally the first time I ever signed up for an HSA, I did have to take 10 or 15 minutes and compare the plans and say, okay, here's my premiums and out of pocket here and here's my premiums and out of pocket here and more and more. What a lot. When you do these comparisons, the difference between the premium and cover and funding the HSA tends to offset, and so if you have a year where you unexpectedly have large medical expenses early in trying to fund an HSA, it's possible you'd be better off in that year having just paid for the premiums. But this is such a great opportunity on the tax side that is at least worth considering.
Speaker 1:Very cool. So and then now I've heard and I haven't seen our clients do this, but I heard, you know, mark J Kuller talking about investing into likea potato farmer or having his HSA owned cows, like there's all sorts of creative stuff I've never done it and looking to how you can do these things legally, but there's some. For those of you who want to go see what's out there, there might be some interesting stuff you can do with this.
Speaker 2:Yeah, it is kind of fascinating the range of options that are available. I really just try to help make sure that people aren't leaving it in cash or like an actually investing it. That's definitely a question you want to ask as your especially if you get a pick who your administrator is going to be, because some of those rules are going to come down to the administrator you work with.
Speaker 1:Yeah, and same thing with retirement accounts and whatnot. So we have clients where they know what they want to invest in and they want to see if they can do it with a Roth, or they invest with their 401ks in certain vehicles, and what we have to tell them is you want to talk to the different providers out there and see who's going to be the most able to give you the opportunities that you want with your retirement accounts. So, for instance, we had a client.
Speaker 1:Client inherited a ton of real estate and because her mother passed away and she now had the opportunity to get real estate professional tax status and these real estate instead of driving her down to a $0 tax bracket and she had retirement accounts, well, this was a great time to now roll it into that tax free bucket. And she was interested, really interested, in investing into cryptocurrencies. So the idea here was why don't we now roll your, your 401k into the Roth? Is the potential taxation on his offset by your real estate losses? And now you're growing that Roth tax free by investing into the cryptocurrency and what adds? What you got to do now, before you do this, is you have to call your providers and make sure that those providers are going to offer you the ability to do the cryptocurrency investing in their, into their financial instruments.
Speaker 2:Yeah, I really love that recommendation to make sure you're talking to the administrator, because I have seen people get in trouble when they try to get creative with how they're investing their IRAs.
Speaker 2:Because there's and I kind of love your thoughts on whether you see this specifically work in the real estate world, because I've definitely seen people get themselves in trouble trying to invest in real estate in IRAs and like, think because there's just things they don't think about and they have somebody come along and give them this really appealing plan of how they're going to invest in real estate or crypto or gold or whatever it might be, and they miss some of these nuances of how it works. When you do that One that commonly comes up with people who don't really know what they're getting into investing in real estate through an IRA, what happens when you get to required minimum distributions? Like what happens when you've gotten to start taking money out and you have an illiquid asset and so and I'm not saying that at all to say, hey, never do this. But I like what you're saying is ask the questions up front, make sure you know what you're getting into.
Speaker 1:Yeah, we actually. We had a conversation on that early on. I think the title was investing in real estate with retirement accounts and though one of the things people don't realize is, even with a Roth, if you are using leverage, like in real estate, there's leverage involved. That leverage may open up the potential to pay taxes on a portion of your income that is investing, that is earned in these retirement accounts, so you would have what was called unrelated debt financing. Now, that may not be an issue, because most real estate operates at a loss on paper, or even if you are paying taxes, you're accessing other people's money to generate the income is still might make sense. But these are just the variables to consider in this complex world of taxation as you're going to explore some of these less common investment vehicles.
Speaker 1:Now here's something cool that I learned about recently, which was interesting is there are even ways where you can invest. Hey, sorry to interrupt, but real quick. If you or anyone you know is interested in using our services or joining our team, email info at markpearlbergcpacom. All right, let's get back to the show. Let's say you have a traditional or a 401k and there are vehicles you can invest in that will result in a reduced value of your 401ks and mitigate the taxation when you roll them into the Roths. So there are ways where you can invest in oil and gas or even some real estate where, before the conversion is taking place, you revalue some of those assets and it'll mitigate the taxation on the conversion. So there's just so much cool stuff out there, so much interesting things out there where you dive and work with people who know more than me on creating these opportunities.
Speaker 2:Yeah, there's definitely a lot of things out there, and this is a perfect example of when people come to me and want to get involved in that kind of stuff. That's where I'm really just open about. Hey, this isn't something I do every day. We need to find somebody who's an expert in this area, because there's a ton of opportunity. There's also a ton of risk If this is something we just dabble in and don't really understand. I'll give you an example. I'd love to hear how you address this with clients and prospects. I was at a conference just recently.
Speaker 2:It comes up that I do tax planning. Of course, as you know, anytime it comes up that you're in taxes or a CPA, everyone wants to share what they just learned on TikTok and find out whether it applies to them. And so it's this guy. He's probably in his like early 30s. He's just crushing it, earning tons of commissions as a salesman, probably like $300,000, $400,000 a year in income.
Speaker 2:And that's his question. He's like man, I pay so much in taxes, how can I start reducing my taxes? And just because it's what I do every day, I start going to my list of well, are you even doing the simple things? And it turns out. He's not doing any of the simple things, but that's not exciting to him and I'll probably get the wording a little bit wrong, but basically the way he phrased it to me was yeah, but a friend told me about how I can buy real estate in some kind of trust where I never have to pay taxes again and it offsets all of my W2 income. Can I just do that? And then that's where I usually start deflecting and say because I'm all for different opportunities, but if you're going to skip over all of the basic stuff and have this idea in your head that you're magically going to never pay taxes again, we're probably at a bit of a disconnect.
Speaker 1:Yeah, here's my thoughts on that. One idea which here's what you can do that's completely legal and is doesn't? You don't need a trust, which is just you take advantage of investing in short-term rentals average length of stay seven days or less, self-manage material participation. Do a cost sag We've talked about this a lot and create great opportunities for people like that to reduce their taxes, create non-passive losses from cost segregation studies on short-term rentals. And you probably will never. If you continue to buy or maybe defer your gains on a 1031 day, you'll never pay taxes. Now. The trust in this situation would be revocable and they would have zero impact on your taxes.
Speaker 1:Now there's a whole. On the other hand, there is this whole other world of philosophies, theories, legal analysis and copyrighted trusts out there that they may call them common law trusts, and this is an area where they will take the stance that certain rules and regulations and concepts in the tax code don't apply because it's in a trust. And we've explored that and gotten down to those rabbit holes and the idea is well, I'll just put in a trust and they're paying taxes again because of all these other nuances in the tax code that apply to these revocable trusts, irrevocable trusts, they get their own 1041 tax return. And now I know some very sophisticated people doing this, but we decided not to go down that path, with enough opportunities, using things that we know work and that we're not taking as much of a risk. And also, what I'm finding is some of these guys are being scrutinized, some of them are going to jail who are abusing the tax code.
Speaker 1:So there is a world of trust tax strategies that we are not going to take our clients down.
Speaker 2:Yeah, there's this interesting misperception, I think, by taxpayers that just because something has been reported on a tax return like makes it okay. And so I always tell people that taxpayers have the worst friends, because everybody's got that friend who told them about this thing where, oh, they've been doing it for 12 years and they've never been audited, so it must be okay. And those things aren't the same. The IRS audits a very, very small percentage of tax returns every year and so just because the IRS hasn't audited you yet doesn't mean it's okay. And also, if we're doing things that aren't in accordance with tax laws, all of a sudden the statute of limitations really start changing and the year the IRS finally picks your return or picks that strategy and sets a new precedence, they're going to go back and make your life pretty miserable.
Speaker 1:Yeah so and really you only need one thing to trigger an audit. So we just had a client where we took advantage of the short-term rental tax incentives here and we had really great documentation and we'll be fine with the audit. But the client had RSUs and did not report the gain on sale. The RSUs.
Speaker 1:The gain was minimal. But now we have transactions in the hundreds of thousands of dollars that were reported, even though the tax liabilities associated with them were minimal. But now that opens up the door to them scrutinizing everything on that return, and now they're going to evaluate not only the 21 return but the 22 return. So it's just, you know, one of the things to keep in mind is, first of all now I'm going a little off topic, but you want to have the documents that you were requested for your return and don't think that the IRS doesn't care, especially if they're 1099s, which is publicly, which is given to the IRS, and they'll notice if it's not there. But also, you know any. You know you only need one thing to trigger an audit for everything to now go under the magnifying glass.
Speaker 2:Yeah, you already mentioned it in there, so it sounds like you're all over this. But that's always a good litmus test for me on what people are recommending from a tax planning perspective of what's the documentation that supports this plan, because sometimes people will go down these tax planning rabbit holes where it's oh, you know, here's what we're going to do and we'll worry about documentation of the IRS ever ask or like it's kind of this, like let's punt on how we're supporting this. But I really take the approach of hey, if we're going to report it to the IRS, we need to be able to clearly evidence, clearly document how we came up with the amounts involved, how we're supporting, whether you know in real estate, whether how we met the classification for real estate professional status, those kinds of things. If you're going down a path with a tax professional and there's not clear documentation, that's time to stop and ask some questions.
Speaker 1:Now let's. So we talked about HSAs, which are overlooked by most of the population, I'm sure. Yeah, when are some other conversations you're having with your clients this time of year and throughout the year?
Speaker 2:Yeah. So like we have kind of like an order of operations of hey, do we have the basics thing, basic things covered, and then, once we have those covered, we keep, we keep building them from there. Especially in my taxpayer group, that's in that 30 to 40 year old range we're having more and more people who have some kind of side hustle. They you know, a lot of them are W2, but they're doing contract work. On the weekend they're doing some, they're doing something else.
Speaker 2:I'm seeing more and more that I don't know what your experience has been, and so then we're working with them on, okay, what are the new opportunities that just opened up to you? Because we've got a schedule C, because we've got self employment income, because there's there's nothing logical or reasonable about the tax code, and so we can't get hung up on logic. We got to just make sure we understand the rules, and W2 employees have very limited opportunities directly related to their W2 income. It's as we add other things. We had self employment income, we had rental income, as we add other sources. Now we can start getting a little bit more creative with how we apply these rules, and so that's something we're always on the lookout for of, of what? What changes here? What are those income streams? And anytime I see a new income stream, I'm immediately looking for okay, what do we now get to deduct against it?
Speaker 1:Awesome. Now one of my favorite side hustles and you'll see this kind of glamorize on tiktok and it looks like a lot of work. So maybe it's not more of my favorite side hustle because I don't have time to do a whole lot else, but what? From a tax perspective, I like the idea of doing a car rental business on the side. So you got these, you know, with with it becoming, you know, kind of like Airbnb they have, like Turro.
Speaker 1:I looked into it and I decided I wasn't going to do it because I didn't want to have to deal with cleaning and tracking the cars. It was like this is not worth my time. But I like the idea of renting out a pickup truck. That's over 6,000 pounds and if you finance the purchase of a business vehicle, you write off in at least as of right now, and I don't know what it'll be after. The recording of this today is January 24th 2024,. You would write off 80% of it minimum in year one for most appreciation on your federal tax return.
Speaker 1:So here's an awesome way where your tax deduction exceeds the cost of the vehicle, that leaves your your pocket because you finance it, and now you get a tax refund that may be able to use to invest into other assets and financial instruments to grow your wealth and and prepare for you for retirement.
Speaker 2:Yeah, there's definitely a lot of interesting ideas out there and I feel like the last couple of times I've taken Turro, I've run into more and more people who are doing this almost professionally as opposed to a side hustle, and for me it still goes back to let's make great life decisions and figure out the most tax efficient way to do them, because this might be part of the reason you decide not to do you talking.
Speaker 2:I don't want to have to track them, clean them, like if if you're doing something purely for tax purposes, we probably need to hit pause for a second. Like you got to decide like, hey, am I really willing to commit to running a fleet of rental cars? And then, yeah, let's do it super tax efficiently, same with rental properties or anything else. Like you got to make sure this is something I want to be involved in, because what I tell people really often is because a lot of times, what people are trying to get into you know they're. They're looking for extra tax deductions and saving it or paying a dollar to save 30 cents never gets you ahead. If it was a dollar you weren't planning on spending.
Speaker 1:Yeah, and he's the thing. You still got to pay down that view.
Speaker 2:Yeah.
Speaker 1:Especially, and, you know, certainly, hopefully, you're not buying this brand new where the value diminishes immediately after you purchase it and then you know the resale value may not be what you purchased it for. Maybe you realize, oh my God, I can't maintain a job and deal with these people. You know, messing up my car and finding someone to vacuum it between you know, between users Like what did I get myself into? I mean, this sounded so cool and it was nice to get that refund, but now I can't even afford to maintain this car. Yeah, so, certainly, certainly you. You have to look at things not just from a tax savings perspective when there are, especially when it involves your time, and we all would like to have more time to do lots of other things. So, so what's kind of side hustles are you seeing?
Speaker 2:So I mean the first one that comes to mind. I work with a big group of mid career medical professionals, and so they'll do they do. You know they've got their main job at the hospital or wherever they're working, and then they'll do contract work at a clinic on the weekends. I'm seeing more and more people do just what we'll broadly call consulting, right that there's more and more virtual opportunities.
Speaker 1:So you know they've got hey, sorry to interrupt, but real quick. If you or anyone you know is interested in using our services or joining our team, email info at mark pearlberg CPAcom. That's info at mark pearlberg CPAcom. All right, let's get back to the show.
Speaker 2:Got their day job where they're, you know, whatever their skillset is, that they're applying, but they're looking for, they're looking for ways to get further ahead and so you know they've, they've picked doing some kind of online gig instead of, you know, having a rental car fleet or whatever it might be. But though, broadly, just the people I'm working with, those are kind of the categories I would throw out there. But it's what? What are those other streams of income that aren't coming through on a W2?
Speaker 1:Yeah, I mean it's really exciting when they this is the first time becoming business owners, when you have a side house, so the first time having tax deduction.
Speaker 2:I recently had somebody on my podcast who works a lot with online content creators and actually professional video gamers, and so we were having this conversation around people who are unexpectedly self employed. Because the first time you become self employed like the tax, your tax situation changes pretty dramatically Like and you're exposed to a lot of new ideas. And whether it's talking about being self employed or getting into rental properties or rental cars, whatever it might be, when you're getting into something new from a tax perspective, you've got to make sure that you personally are either taking the time to really understand the changes or that you're working with a professional and I would really encourage you even if you never remember my name, like it doesn't have to be me you work with. Work with a professional, like there's, especially if you want to start maintaining a rental car fleet. You don't want to also track all the taxes find a good professional to work with.
Speaker 1:Oh, absolutely. Now the way I say is, you want to dabble in tax play and you certainly wouldn't want to try to DIY a root canal. Why are you trying to DIY your own taxes? And and you know, with all these ideas, one of the things that I noticed is the greatest surprise, and not for a good reason is self employment tax. And people don't realize, especially when you're starting off and maybe you're making your first $50,000 a profit. You may find that this self employment tax, which is tax in addition to your federal taxes and state taxes, it may be your greatest tax burden is the self employment tax, because it doesn't get. It isn't a marginal rate, it's that flat 15.3% on I think right now is your first 165. So you may be in a low bracket for your federal and and you know, usually states flat as well, but a low flat rate, but the self employment tax can be really painful. So first thing you do, you maximize your tax inductions and then you're going to want to also consider an S corporation.
Speaker 2:Yeah, no, that's a really great point. People are often surprised by that. I came across a situation not too long ago where a taxpayer's marginal tax rate what they were going to pay on their next $1,000 of income for income taxes. They were in the 12% bracket but their effective rate, the average rate they paid on all of their taxable income, was closer to 30%. Because of self employment tax, because the standard deduction, the itemized deductions, don't help reduce our self employment tax. Your child tax credit doesn't help reduce your self employment tax. Right, I mean there, these things, all there's an interplay between all of these. But yeah, self employment tax can be really painful if it's not something that you're used to expecting.
Speaker 1:Yeah, now a lot of you guys are watching the TikToks and a lot of people like to just they like to you say like the same five things around them as demonstrating the the S corp.
Speaker 2:Yeah.
Speaker 1:And you're like, oh, I need an S corp. Or even you get some of these attorneys at some of these like real estate guru conferences and they don't even know what your situation is and they set you up with an S corp or C corp without even knowing what kind of profit you'll make.
Speaker 1:And so what you want to do here is, even though an S corp can help, you really want to make sure again that you're working with the right person who understands the tax law, because you may find that you don't make enough to justify that investment. Some people might even make too much where, let's say, at your W two job, you're making 800,000. Now you're not paying social security taxes, so you're not really going to save yourself very much with an S corp.
Speaker 2:Yeah, I'm really glad that that's the way you approach it, because you're absolutely right. There are people out there who think S corp is the answer to everything, and if all you do is S corps, I mean, that's that's like having a hammer, so you you know, if that's your only tool, then you look at everything as a nail and you want to hit it as hard as you can. S corps can be fantastically taxed advantage, but in the right situation, because they're deaf, they're additional costs. There are differences in tax rules that aren't always in your favor. And then, anytime we're talking about legal entities, I always try to remind people that this is a legal question. First, we got to figure out what makes the most sense for your business from a legal standpoint before we worry about what makes the most sense from a tax standpoint.
Speaker 1:So what are some of the most exciting opportunities that you're finding for your clients, for building wealth and reducing taxes?
Speaker 2:You know. So that's not usually the way I phrase it to my clients. As far as it being like individually, one thing in particular being the most exciting because I'm really locked in on just who I serve on this is consistent things over time, and so where it gets exciting is when we look at the next 10 or 20 or 30 years which, depending on the client base you're working with, that may not resonate with a particular group of taxpayers more than others, but that's just who I'm working with. That it's what are those small things over time. So are we taking advantage of these different types of retirement accounts? Are we making sure that, year in and year out for our self employment income, that we're reevaluating and making sure we're taking advantage of every deduction as we take care of those basic things? Then, yeah, let's get. Let's get a little bit more exotic and think about some of these things. Should we be doing 1031 exchanges? Should we be looking at some more unique things, like the Augusta rule, or employing our kids, or whatever it might be?
Speaker 1:Yeah, and certainly the even you know investing into, you know passively, into two things that are going to grow at a steady 10% rate. First year that may not be that exciting, but when you look at the compounding effect of what that does for your wealth, it sure will have a transformational impact on your life. So we got a couple of minutes.
Speaker 2:Tell us something interesting about yourself, and what do you do for fun, interesting about myself, so one of the things I really like to do I really just talk about it, as I really like to adventure. I'm very physically active. I do a lot of obstacle course racing. This last fall in November actually on my birthday I did my first 24 hour obstacle course race and so I ended up covering 56 miles and like 200 obstacles, something like that, and so I'm not in a hurry to do that particular race again. It was a lot of exertion, but yeah, I like to be, I like to be outdoors, I like to have fun, I like to try new things.
Speaker 1:Cool, now can you give a call to action and or how clients can learn a more about using your services, or does that follow it up with you?
Speaker 2:So I'm most active on LinkedIn. Stephen A Jarvis, you'll find me if you look for me. And then I have both. I work with a lot of financial advisors, so I have two podcasts one for financial advisors talking about tax planning and then one for consumers talking about tax planning, both under the retirement tax services name.
Speaker 1:Yeah, I think so. I think that's a good point here. So you work with a lot of financial advisors and coach them on how to serve their clients in the concepts related to taxes, right?
Speaker 2:So I've written a book. It's called Don't Get Killed on Taxes. Everything I do, whether I'm working with consumers or advisors, is really focused on this long term approach of really sanding off the rough edges of your lifetime tax bill.
Speaker 1:Wonderful. Okay, Steve, thank you so much for your time. Now do people call you Steve in or Steve, because I was talking to someone else and her name is Elizabeth and she's like you're the only one who calls me Liz in New York. We don't. Do we try to shorten our syllables or things. Do people call you Steve in all the time, or do you ever get Steve?
Speaker 2:So I introduce myself as Steve in and I use see it really hung up on it. And then one of my first really crappy college jobs was working at an airport loading planes, and everyone there had a one syllable name or a one syllable nickname. And if you didn't have a one syllable name the nickname was not going to be flattering. So I was happy to go by Steve.
Speaker 1:Okay, there we go. You got it. You heard it here first, steve. He's happy to be called Steve. If you want to connect with them, it'll be in the show notes as well. You did you give your contact info. We got everything. Yep, it will put in this show notes. Absolutely Awesome. Well, I enjoyed this conversation and we'll be talking soon. Thanks, mark, you are. Anyone you know is interested in using our services or would like to join our team? Go to info and Mark Pearlberg CPAcom. Again, email info at Mark Pearlberg CPAcom.