The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
Ep 68 - How to Reduce Taxes from Your High Paying W-2
Imagine offsetting your W-2 income with tax deductions from a side business like renting out heavy machinery or solar panels. Join us as we bust the myth that tax savings are only for entrepreneurs and explore practical strategies that can benefit anyone. From leveraging charitable tax deductions to investing in tax-advantaged opportunities where savings exceed initial costs, this episode is packed with actionable insights to help you reduce taxable income, generate cash flow, and build long-term wealth.
We take a deep dive into the wealth-building potential of real estate investments, showcasing short-term and long-term rental strategies, cost segregation studies, and the incredible tax benefits of having a spouse as a real estate professional. Discover the advantages of qualified opportunity zone funds, and passive investment vehicles like ATM funds, car washes, and self-storage. Learn advanced techniques to offset large capital gains from tech startup investments and understand the importance of vetting investment funds to avoid scams. Tune in for a comprehensive guide to accelerating your financial freedom and achieving long-term goals through savvy tax strategies.
So there is a misperception here that the tax scheme and the tax savings opportunities are only for entrepreneurs. But if you are resourceful and understand the tax code, there are ways that you can do this. That was my electronic desk making noise, but if you understand how the tax code works and the opportunities available, you are going to find. But we can do other things that are going to hit your 1040, and we're going to break those down into a few categories, and the first thing we're going to talk about is how you can create a side business of some sort, whether it's an investment or a business. We're going to talk about different ways you can access tax deductions that will offset the income that you are paying taxes on for your W-2. Then we're going to talk about ways that we can create charitable tax deductions, and then we're going to discuss tax advantage investments and investment vehicles that you can put your money into, drive down your taxes and, at the same time, build wealth and create cash flow. And again, put any questions you have in the Q&A. I will answer every question until this ends, so let's get into it. First off, let's talk about how we can reasonably and realistically create some sort of side business. So if you have a high W-2, one of the things that we one of our first things we may want to consider here is are you interested in being somewhat entrepreneurial and do you have the time and capacity to be somewhat entrepreneurial? So some of you folks may be interested in real estate investing. We'll talk about that a little later. The reason why I'm saving that for the end is because I've talked about this in excess, about how to use real estate. So hang in there if you want to hear about how you can reuse real estate to offset EW2. But there are other ways that we can create part-time businesses that will reduce our taxes and potentially create wealth. So one of my favorites is a way where we can use leverage to access assets that give us tax benefits, and I always love strategies where the cash that leaves your pocket in year one is less than the tax savings. So anytime where we can pay $100, create $200 of tax savings, we're up. We have more cash to deploy into other vehicles that further create cash flow and tax savings. So one of my favorite ways to do this is if you can find some way to rent out heavy machinery or equipment. So we do have a facilitator that will help you out with buying heavy equipment and renting it out to third parties. So, for example, it out to third parties. So, for example, think about it like an Airbnb portal.
Speaker 1:Imagine you were to buy a million dollars in equipment but you financed it. So let's say we only pay $100,000 to access $1 million of real estate. If that were the case, we would get bonus depreciation on the five-year life of that equipment approximately a $600,000 tax deduction. Now let's say you're in the 30% to 35% tax bracket. Your tax savings let's say we're in a 30% tax bracket. That's $180,000 of federal tax savings, and you have state-level tax savings as well and you have straight-line depreciation. So here's an example where you're paying $100,000 and getting back in the form of tax savings, $200,000. And when you rent out the equipment, you are going to get cash flow and you are going to build wealth. So this is one of my favorite things.
Speaker 1:Now we have another strategy that you most likely haven't considered, which is in solar rentals. So if you were to invest into renting out solar panels of third parties, you leverage the purchase of the solar panels, you get immediate bonus depreciation and you get investment tax credits and those tax credits not only give you a dollar for a dollar return of the taxes that you're paying, you can also paying for. Just to give you some round numbers here of what we see. Imagine you're paying, you're going to get a $500,000 tax reduction and we show this to the clients. How are you going to create a refund of $500,000? I've never paid more than $300,000 on my taxes. Well, we get the depreciation that reduces your taxes. We also get the tax credits that can give you not only once we've taken refunded all of your 1040 taxes, then we can pull from the, we can amend and pull from the taxes that were paid on your 22 return and your 21 return. So this is just a great way to get back some of the taxes you paid, even in the prior years. And again, you're renting out the solar panels for profit. So in the future years you have cash flow and additional depreciation in the federal and state level. So this has been a really fun and exciting way to do it here. And then a lot of our clients when we share this with them, they find other ways. When we share them with these concepts that they can create businesses they're going to give them access to using leverage and finance, getting that upfront depreciation that can offset their W-2s.
Speaker 1:Next on the list here I want to spend a little bit of time talking about charitable tax reduction. Now you may be thinking to yourself if we love charity, a gift to my church, that's great. But if I give $100 to the church, I'm at a 35% bracket. I only saved $35 in taxes. I'm still out $65. Well, that may be the case, but when you work with a tax strategist and we've spent thousands of hours researching the absolute best, most impactful strategies available to the public and we also protect our clients from the negligent promoters and charitable strategies that may be borderline illegal. So there's a lot of pretenders you got to be very careful who you work with.
Speaker 1:But if you do this properly, there are ways to invest into assets that will give you a tax deduction that is greater than the cost. We've done this with lots of different clients. So we have one client in particular. He invested $180,000 into a charitable investment vehicle charitable investment vehicle. That $180,000 created approximately $350,000 of tax savings. So the net effect of the investment minus the tax savings is in the six figures approximately $170,000 of net savings net of the cost.
Speaker 1:We also have strategies where you can use leverage and create immediate tax deductions, using leverage into financial and charitable vehicles and we also see if you have capital gains events. We can also use trusts and when we create a system by which we can dedicate these funds for the trust in the future, create immediate tax reduction and create long-term wealth and cash flow. So there's a whole world out there of advanced charitable strategies. Another one that's really fun is private family foundations, where, if you are already terribly inclined and want to eventually this is really popular with entrepreneurs in particular but you can, essentially, you can reduce your capital gains tax or eliminate your capital gains tax you can set aside funds for when you want to eventually do things that are more philanthropic, that get the family involved, and now you have family activities that are more philanthropic, that get the family involved, and now you have family activities that are tax-deductible. Lots of exciting things you can do with creating your own charitable organizations, public charities and private family foundations.
Speaker 1:So what we see as potential savings and we have created savings anywhere from $50,000 to about $600,000 in our 2023 tax returns and this is going to give you a tax deduction that could be anywhere from two and a half to 10 times your investment into the strategy. Now your thing is to yourself. You may have heard of some of these charitable strategies. We also know of charitable strategies that will create profit and cash flow. So one of the things we can share with our clients is investing in real estate that creates charitable deductions. So we are connected with syndicators who can invest into charitable vehicles and real estate investment vehicles where you have to maintain certain historical features and those historical features give you a tax deduction that's approximately two and a half times the investment called the historical preservation. So imagine we invested one hundred thousand dollars. We get a two hundred250,000 tax deduction. And this is really exciting for our clients because we have one client who's in a 40% tax bracket. So that client imagine the client invests $100,000, gets a quarter million dollar tax deduction at a 40% tax bracket. What's the net effect here? Our tax savings covers our investment into the vehicle. So it's like we're paying nothing at all to invest into real estate. And what do we get in the following years? Well, we get depreciation offsetting the rent revenue. We get distributions If they refi, we get a good chunk of that money back and we get a capital gain on the exit of the property, and we can talk about all sorts of fun and exciting ways where we can mitigate that capital gain with qualified opportunities, owners and trusts and other real estate so a lot of exciting ways where we may not pay any taxes on the capital gain. So charitable strategies are incredibly impactful and this is what the top 1% are doing in order to create significant tax savings. Now we're going to talk about some other investment strategies that I think you're really going to like here.
Speaker 1:Not a lot of people are aware how profitable and beneficial these are, and one of my favorites is oil and gas investing, and you will find two webinars on our YouTube page you can check it out on oil and gas, where we talk about the expected returns in tax deductions. Essentially, for every dollar you invest in year one into working interest into an oil and gas fund, you are going to write off 80 to 90 percent of that investment against your ordinary income. So we have clients who have invested anywhere to as up to $300,000 into the oil and gas fund. One of our clients invested $300,000 into oil and gas. We saw a reduction in taxable income, so the tax deduction was approximately a quarter million dollars. So at a 30% tax bracket that would be around $75,000. So but he was actually in a higher bracket and probably more than 40%, but anyways. So we see an initial reduction in taxes and initial tax savings in year one.
Speaker 1:Also, we see cash flow. So imagine we get that initial tax deduction of 80% to 90% of the money put in and you get cash flow and money coming back into your pocket. And, compared to real estate, the cash flow and the velocity of the cash is a lot faster in these vehicles. Check out my other webinars where we talk about the profitability. We see clients who've seen returns of anywhere from 20 to 40%. I can't advise you on who to invest with. I don't want to do anything I'm not going to authorize. But we have seen a client where we're seeing incredible returns and they don't have to do any of the material participation, the active involvement. They simply invest, get their tax savings, get their cashflow and sit back. And what I really like about this with our clients is it pairs really well with real estate investing because the cash flow and profits are passive from your oil and gas when the money starts coming in and now you can use your passive losses from your real estate, even without reps, to offset the profits. So now we have money coming in that we are not paying taxes on and anytime we can do that, we're winning the tax game.
Speaker 1:Let me fix my camera here. That's a little. I got to put my little finger in front of it to refocus it every now and then. There we go. Next let's talk about, oh, another fun thing I love about oil and gas. While we're on the topic and I'm just going to riff a little bit and hopefully you guys enjoy this is you can 1031 into oil and gas. So imagine not only do we defer the capital gains on our real estate investment, we actually reduce our taxes with the oil and gas. Great exit strategy. And we also have ways, if you want to convert a Roth, a 401k, into a Roth, where we can invest in the oil and gas and we can time it and reduce the taxation on the rollover by as much as 50% in certain examples with the way that you structure it. A lot of really fun and exciting things with oil and gas. I could go on for days on oil and gas, but I'm going to try to stay on topic for you guys, I hope you guys found some of this stuff interesting.
Speaker 1:Next, what I would like to talk about is there are ways you can and this is for the really higher end investors. So we want to see at least a million dollars liquid, but we do have access to financial instruments that are going to allow you to use leverage and harvest losses in your investment portfolio that you give you non-passive losses. For example, we do know of an investment vehicle where, if you invest a million dollars, you will create a non-passive loss of $80,000 year after year after year, and the returns are fantastic. You're growing your wealth, compounding it and creating losses and refunds on your taxes. Now let's get into the real estate, and I've talked about this a lot.
Speaker 1:But let's get into the basics on how we can use real estate to reduce your taxes, and the most popular one that we see, where we're investing into real estate, getting our cash flow and depreciation and we're reducing our taxes with short-term rentals. So if the average length of stay of your short-term rental invested is seven days or less, we can use the losses to offset your W-2 income. If we run a cost segregation study, we can accelerate the depreciation and create a tax loss, even if you're cashflow positive, it's going to create a tax loss on your return from that paper deduction and that is going to allow you to create massive refunds. So we see a lot of instances where clients do a second worldworld mortgage for a log cabin. They only put 10% down. They do a cost segregation study. They may be able to write up 25% in year one and again we love when we're using leverage and other people's money to create tax deductions.
Speaker 1:We create a tax refund that allows us to invest into more and more real estate. We have literally created tens of millions of dollars of savings just by taking advantage of short-term rentals. Finally, with long-term rentals, if you have a long-term rental or multiple long-term rentals, and we can say that your spouse because you have your W-2, if your spouse is a real estate professional, you can now treat your losses as non-passive and you could again run the cost segregation studies, which allows us to front load the depreciation expense. Again, we have cash flow positive real estate, but we have a loss on our taxes and again we have done this with clients to create millions of dollars of tax savings. In fact, just to give you an idea of what's possible, we have one client. The tax preparer did the tax return perfectly compliantly, no issues at all. But the tax preparer did not understand cost segregation and how to take advantage of the incentives for real estate investors. So we simply amended the return, did the cost segregation studies. The impact of those cost segs was a $90,000 refund on the amendment. So just by being strategic and aware of the tax incentives, we were able to create $90,000 of savings for that client.
Speaker 1:So all this information by the way, most of it I've talked about in prior webinars. So if anything is striking your interest and you want to learn more, just search oil and gas at Mark Probert CPA on the YouTube channel and you're going to see two webinars on that. I have a webinar on cost segregation. You just type cost seg. We have one webinar titled what is the short-term rental loophole and it teaches you a little bit more on how you can actually use the tax code and what you have to do to qualify to use your losses as non-passive. And then we also have a webinar titled what is a real estate professional tax status. All those things should be considered here Now. These are the foundational ways that we have found to reduce our clients' taxes that are coming out of their WTAs.
Speaker 1:But I wanted to spend a little bit of time talking about a few other concepts, because what are we going to do with our tax savings? Obviously, we want to reinvest into other things that further drive down our tax. Maybe we're going to buy another short-term rental, maybe we're going to invest into oil and gas and maybe we're going to consider some solar rental projects. That's all wonderful. But let's say we've exhausted all these things and we want to do some other ideas here. And let's say we have a capital gains event.
Speaker 1:If we have a capital gain event, we can put our money into qualified opportunity zone funds. And what I like about this is well, let's say we don't have rep status and we can't use our losses. Well, they're still going to run a cost-to-evaluation study on this qualified opportunity zone. You're going to defer your taxes and if you hold it for 10 years, the exit is completely tax-free. Not only that, but any losses you couldn't use because you weren't a real estate professional, you're going to access those when you exit out of the investment. So imagine we have suspended losses of $100,000 that we couldn't use because we just don't have that real estate professional tax status and it's not a short-term rental. After 10 years, let's say, in a decent qualified opportunity zone fund, we'll at least double your funds. So let's say, after 10 years, opportunities on fundable, at least double your funds. So let's say, after 10 years we've doubled our funds. We get a massive capital gain, no taxes. Not only that, but those unused tax deductions from the cost tags are now freed up when we exit the investment and are treated as non-passive and can offset our income.
Speaker 1:Another thing I want you guys to think about here as W-2 folks even though we love creating tax deductions to offset your W-2, we also want to be in the game of making profit and there are lots of passive investment vehicles where you're going to access depreciation and that depreciation will offset the cash flow. So we see a lot of people in our network syndicating different types of investment vehicles, such as ATM funds and car washes and multifamily real estate, mobile homes and self-storage. These are all wonderful ways to have tax-advantaged income. It likely won't reduce your taxes. But think about this the oil and gas is going to build and compound and be more and about this, the oil and gas is going to build and compound and be more and more profitable. Now we can use the losses to offset that and make sure that our profits are not being taxed from that vehicle.
Speaker 1:We're going to create wealth and savings and we can't really. There's only so much that we can manage and we're going to have these side businesses. So it's really great to still invest in all the things that we love, like the real estate and the passive vehicles, and still, anytime again, when we're having money that hits our account and is profitable, we're not paying taxes on it. We're winning the tax game. So now we have a way where, if we're doing a charitable strategy, we're investing it to something where we're creating profit in cash flow and we're still not paying taxes. And what I want you guys to envision now as the end result I want you to imagine and this is possible and we have seen it with our clients we reinvest our tax savings created from any of these strategies or combination of strategies. We take this chunk of wealth, we reinvest in a way that is tax-administered, tax-free, and we have more money compounding and building and growing month after month. So eventually this is going to accelerate the process by which we have enough passive investment income to quit our job and spend more time with our family and achieve that financial freedom.
Speaker 1:So this stuff is really powerful. It has changed lives, especially with W-2 employees. One of our best, one of my favorite tax refunds I saw we had one client that had about a $580,000 tax refund. He was full-time W-2, no real estate professional tax status. Just use a combination of our strategies and this is all possible for everyone here Now, at different income brackets. Some of these things are going to make more sense than others, but I want you to be open to the possibility of taking control of your tax situation and your income and your side hustles so we can win the tax game, build wealth and achieve what you're looking to do with your lifestyle.
Speaker 1:Now I'm going to read some Q&A here in some of the chats and see if we can continue the conversation. So Dylan says actually, before I go to do any of this at all, I do have some next steps here I want to share with you my thoughts. So this is all fine and dandy, but after we get off this call, a lot of you guys are going to probably do nothing and you're going to go back to having chunks of money coming out of your w-2. So what I've done so we can move the ball forward, and I want to give you guys, as just as a reward for putting your time in and giving me your attention, is, I have a sheet that I'm going to share with you. It is a quick survey. It should take no longer than five minutes to complete. Now you can put more time into it it and if you want to give us more detail the more detail, the more we can help you out.
Speaker 1:But you're going to fill out this form. I'm putting the link in the chat. I want you to fill out that form. The more detail you give us and the more income we have, the more impact we can have. I will read every single form that is filled out there and we will read your answers and we will tell you what opportunities are available and how much, what we recommend you do, how much we think you could potentially profit on some of these ideas and what is possible based on your situation, how much income you have, what your goals are and what this means for you. So you will get a personalized video from me. I will read every single form and I will share with you what we can do. So you look in the chat. I want you to fill that out Now, some of you who are watching the recording of this and if you're watching the recording or you're listening to the podcast of this, I want you to simply email info at prosperalcpacom P-R-O-S-P-E-R-L. Info at prosperalcpacom and just put in the subject line form. We'll know what you're asking for and I will send you that form over.
Speaker 1:Now let's take a look here at some of the questions and comments. First, in the question category, if I invest in a tech startup that has a big exit, that generates a large capital gain, what are the best ways to offset, aside for oil and gas? I would assume the answer is different if it's a short-term or long-term cat game. So I would say that the impact I'm going to put the email again's info at prosperlcpacom. Also, you can email me directly, mark at prosperlcpacom, and I'll see you faster. So the strategies, whether it's long or short-term cap gain, are not impacted. So we invest into this tech company.
Speaker 1:First, I want you guys to, if you're investing in a tech stock, see if you potentially have qualified small business stock. Essentially there's an exclusion in section 1202. So if it's the right type of C corporation, you could potentially defer your first not defer, sorry. You could potentially eliminate the capital gains of the first $10 billion and if that's the case you're good to go. But let's say that's not possible.
Speaker 1:Qualified opportunities those are an amazing way to first see what's going to happen here is you're going to defer the taxes, you're going to pay any taxes until 2026. When you invest into those vehicles, they are aware that you're eventually going to be recognizing capital gains. So in the year of the tax, if it's a real estate investment vehicle, by the time you hit 2026, where, when the taxes are going to eventually be due, where, when the taxes are going to eventually be due, as you're doing your return, the plan is that they've got the real estate development project up and running and now they can revalue it and do a cash out refi. And what I've heard from a lot of our resources is you would expect about 30% of your investment to come back to you in the form of a distribution completely untaxed by the way and that distribution will cover at least enough to cover the capital gains tax when recognized. Not only that, but now it grows and it'll compound and it'll accumulate and after 10 years the exit on that investment is completely tax free. There's also all these other ways that we can do this, and even oil and gas investing within a Qualified Opportunity Zone fund. If you want to learn more, I have two Qualified Opportunity Zone webinars with some really great speakers. Just search Qualified Opportunity Zone on the YouTube page. Great question here. Let's see if I've fully answered that. Oh, actually, let's talk about some other ideas here.
Speaker 1:Now some other things to think about. With the qualified opportunities on fund is you only have to put your gain in. So the principle if you know whatever that principle is if it's $100,000, that's principle. You can, that'll be returned to you. You can do whatever you want and you can put that into oil and gas and that'll reduce the taxes going out of your paycheck. So imagine we defer the cap gain portion by putting it into a QOZ and then we put the principal into oil and gas and that's going to reduce your taxes. Sometimes also, if we just want a tax reduction, we take a capital gain. We can put it into oil and gas.
Speaker 1:The only thing here there's some pros and cons. The funds that go into your oil and gas are not going to offset cap gain. They're only going to offset your ordinary income. So the net effect is still a tax reduction income. So the net effect is still a tax reduction. But if you have significant cap gain let's say we have $5 million in cap gain and only $100,000 in W-2 or half a million W-2, you're still going to wind up paying taxes because it's only going to offset the W-2 portion of your income.
Speaker 1:And then there's also charitable strategies to further reduce your taxes. Strategies to further reduce your taxes, some other things here. So the link isn't working for me. Okay, let me see. Here I'm going to test this link. Oh, you know it's working for me. I'm going to post it again. Let me know if the link isn't working to you. Maybe I didn't paste it all the way. Here we go Forms and also just email marketprosperalcpacom and I'll just send you a questionnaire if you just can't. So some other things to think about here. We got some other quotes, sorry. Some other chats.
Speaker 1:I am almost done investing in several oil and gas funds due to the awesome W2 benefits Fantastic, dylan, I'm curious if you have any other existing relationship with funds or operations, because there's a space with lots of cowboys and even scams, sadly. Yes, dylan, if you shoot me an email and also you can. We have a really good webinar on vetting oil and gas with Steve Blackwell. I want you to watch that video on our YouTube page and it's also going to be available in podcast form. Let's see, yeah, so the investments are not public, they're actually. Um, let's see, yeah, so the investments are not public, they're actually. I have heard of some publicly traded QOZs. I'm not really sure how that works. Typically, what we see is you invest in a fund and it may invest in one real estate project, but oftentimes the fund will invest across multiple qualifiedified Opportunity Zone funds and you can actually invest passively into businesses operating in Qualified Opportunity Zone funds.
Speaker 1:I'm going to put another link in the chat here Now. If you think that you actually would like to see if some of our services apply maybe you hear some of this stuff and you need help because we're already going into the fall here you can go to membershipmarkperlbergcpacom slash apply. You'll also fill out a survey there and you'll get a chance to book a call with someone on our team. So I won't be giving you a personal call, but if you're really eager to get started, we're going to see that link in the chat as well, but if you're really eager to get started, you're going to see that link in the chat as well. So, as far as next steps, I'm giving you guys some really cool freebies here.
Speaker 1:Fill out the form. I will read and respond to everything and give you my thoughts and feedback, even if you don't qualify for half the things we've listed. I really want to add tons of value to our listeners and audience and I really hope you got a ton out of this. I'm going to hang out for 30 more seconds to see if we have any other questions on how we can use advanced strategies to reduce your taxes and the taxes coming out of your W-2s. All right, it looks like we don't have any more questions coming in, but please, if it's a personal question, you can email me, mark at prosperalcpacom.
Speaker 1:Fill out the form. I really want to help you guys out. It's free. I'll send you a personalized video and hopefully I can help you along your way in achieving financial freedom and winning the tax game. Again, if you have any questions, just reach out to info at prosperocpacom. Email me directly, mark at prosperocpacom. You have some links in the chat to apply for our service. I really want to hear from you and I really hope that we can make a difference. We got a couple of months left in 2024. Let's do big, let's win the tax game, let's build some wealth, let's get some passive income. Let's all have some fun here and take control of our finances again, and we hope to hear from you soon. Have a great rest of your evening. I'm going to go try some tequila now and make sure you like and subscribe if you're watching the recording. Have a good night.