The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 78 - What to do with Your 100K of Tax Savings
Ready to slash your tax bill? Schedule your free consultation and let's strategize your tax savings together! Book now at: https://www.prosperlcpa.com/apply Or, if you still need more time, here are some other ways to begin winning the tax game...
At the very least, get on our newsletter to gain access to free live events and exclusive insight you won't find anywhere else: https://www.prosperlcpa.com/newsletter-subscription
Unlock the secrets to saving big on taxes for high earners—join our FREE live Tax Q&A calls Wednesdays at 3pm EST Reserve your spot now at: https://www.prosperlcpa.com/live-qa
Get your FREE Personalized Tax Planning Video at: https://www.prosperlcpa.com/5minutetaxplan
Make the most of the available tax strategies for real estate investors and gain access to reliable guidance, expense templates and workpapers with our Essential Tax Planning for Real Estate Investors Course
Tax planning goes beyond simply aiming for a refund; it’s about reinvesting that windfall into opportunities that foster long-term wealth. We explore strategies like paying off high-interest debt, business reinvestment, and various investment avenues such as real estate, oil and gas, life insurance, and Roth conversions to maximize your financial gains.
• Importance of managing credit card debt
• Reinvesting in business for higher returns
• Real estate as a significant wealth-building vehicle
• Exploring oil and gas investment benefits
• Utilizing life insurance for tax-advantaged growth
• Advantages of partnership interests in unique investments
• Stock investments and advantages of capital gains taxation
• Considering Roth conversions for future tax savings
All right. So let's say, here you finally have implemented your tax plan here, you finally found the right person to work with here and now you get your tax return. Let's just say and this applies to a lot of our clients, so I'm really speaking to a lot of our clients here, but also to you casual listeners here who've been maybe doing some basic tax planning so you get your first tax return filed after doing some tax planning and you get a massive refund here. But let's just say, circumstances have it. So you file your return and you see a refund of half a million dollars or even a hundred thousand dollars or more, because of all the tax planning ideas that we do with you or your advisor has done with you, or if you've done some cost segregation studies. This is especially applicable to you if you are a high W-2 earner. We have lots of high W-2 folks. We have a whole playlist, by the way, on our YouTube page for W-2 earners and tax planning. But this is especially true because that money is automatically coming out of your W-2 regardless of what you're doing for your taxes. So we get a massive refund here of a couple hundred thousand or half a million or millions of dollars.
Speaker 1:We have seen six and seven figure refunds, and now the question is, now that we've exposed you to this whole world of tax planning and taking advantage of tax incentives what do we do with our tax savings? How do we protect our wealth and have tax advantage growth? It's not just about driving down your taxes. How can we prevent future taxation? How do we grow this bucket of wealth and put it into stuff that's going to allow it to continue to grow in a tax advantage manner? So we're going to walk through some of the things that I think you should think about as far as what you should and can do with your money, and pretty much we're going to go in a list of priorities of first, most important and then down the line of things to consider. There's going to be some overlap, but this should be a really fun conversation for you once you get that six-figure refund check from your tax return.
Speaker 1:So first thing I want you to think about now this is unlikely to be a huge issue here, but for some of you folks who maybe took some risks or maybe you're not paying attention to certain things, maybe you have some credit card debt and credit card debt If you maintain it and you can pay it off. It's stupid because the interest rates are typically going to be like 20, are typically gonna be like 20, 25%. It's just absurd how high those credit card interest rates are. So when you have a bucket of cash and you're thinking about where to deploy it, the first thing you wanna do is chip away at that credit card debt, because it's just stupid and it's unlikely that your return on investment into other things will be greater than the interest costs on your credit. Also, it's nice to have a good credit score. Now I'm going to assume there's not a huge issue for you guys, but at least take a look at your credit card debt and make sure you got that managed.
Speaker 1:Next thing I want you guys to think about before we get into all of the sexy things and the fancy financial instruments and the this fund and that instrument that does this and accumulates and does all these fancy things, what do we need to invest into our businesses Now? Sometimes we may find that we don't really need to put any more into our business. Our business has plenty of cash and liquidity anymore. Into our business. Our business has plenty of cash and liquidity. We're not being bottlenecked. But a lot of you may want to consider how can we invest back into our businesses, into our wealth building vehicles that are supplying us with all of our income in a way that's going to give us the greatest ROI? What we often find is, for certain key hires or maybe maybe 200, 300, 500, I mean, a good assistant, a good manager, can really transform and change your organization, and the ROIs on those are going to be also greater than any fancy, sexy investment. If you can make a key investment or purchase in your business, that'll produce a really high return. So think about if you were to invest this back into your business. What could that do for you? If you were to invest this back into your business, what could that do for you? Okay, so now that we're past these somewhat foundational expense items, let's get into some investment-related vehicles of what you could put your money into with your tax savings to continue to build your wealth in a tax-advantaged manner.
Speaker 1:Well, one I like, which I always talk about, is real estate, and I can go on and on about cost segregation, bonus depreciation, short-term rental, loopholes where that real estate can reduce your taxes, even if you're cash flow positive, which is all great. But even if you don't have the ability to use real estate to offset your losses let's say you don't want to be a landlord and you can't really do anything to reduce your taxes I still really like real estate as an investment vehicle. You can be a passive investor into syndications. You can invest into other people's deals and see the benefits of the cash flow and the future exits that are profitable. You're going to use the depreciation to offset some or all of the profits on those exits of the real estate and you're going to take advantage of the. Maybe even if you pay taxes, you're taking advantage of the favorable capital gains treatment. But oftentimes if you're reinvesting and reinvesting into the real estate, we see so many people who are super rich bringing in tons of money, tons of cash and never paying any federal taxes Maybe some state taxes, but almost never paying federal taxes. So we really love to see real estate as a vehicle for cash flow and wealth accumulation and really, really good tax advantages and also to diversify your income sources. So we love real estate.
Speaker 1:And another thing that I would say is about, in line with real estate that we love where you can deploy your tax savings is oil and gas investing. Here we don't need to worry about having that real estate professional tax status or material participation. Having that real estate professional tax status or material participation, you can invest into working interest in oil and gas and further reduce your taxes in the year that you put your money into the oil and gas. Now I know we talked about you already have tax strategies. Maybe you're already at a low bracket, so you know.
Speaker 1:Here's a way where, let's say, you're using a charitable deduction strategy and we have several where we use that. We can use advanced charitable deduction strategies that will offset anywhere from 30% to 60% of your income. That oftentimes creates a massive refund. And then what we can do here is we invest into oil and gas and further reduce your income because the charitable deduction strategies are maxed out at a certain AGI threshold. Your AGI adjusted gross income is typically going to be just your combination of income sources from your W-2 businesses and investment vehicles. So what we can do now is we can further drive down your taxable income by putting money into the oil and gas, and now we have we can further reduce it again when we implement the charitable structure. So we have this kind of we talk about this a lot.
Speaker 1:With real estate, the snowball compounding effect we create tax savings and invest it into things that further reduce your tax savings and also continue to bring cashflow. And even if you're not in the highest bracket because of whatever available strategies are for you, let's say you have the access to lots of depreciation deductions or lots of assets, we still like oil and gas for the diversification. It's a truly passive vehicle and the cash flow that we've seen and obviously we're not investment advisors, but what we see and hear from our clients is that the cash flow and the profitability is not only tax advantage but it's a good source of income. So we love the oil and gas. Now, after oil and gas, another thing I really like here and again, this is one of the areas where you actually don't have to compromise. You don't have to do oil and gas in lieu of this vehicle.
Speaker 1:But we really like life insurance. So let me articulate why we like putting your tax savings into life insurance and this is a loaded topic. You can check some of our older podcasts on this but life insurance as a wealth building vehicle is going to allow you to have this thing. This life insurance. It's going to grow and it's going to compound year after year. You're not going to pay taxes on it and you can borrow from the life insurance. You can borrow from the life insurance to invest into oil and gas, to invest into the real estate and to put money into your business and a lot of people you may hear this phrase infinite banking and essentially, instead of putting your money into a bank, into a checking account that doesn't pay interest or even a savings account that does pay you interest, you pay taxes on that interest. When you put your money into the life insurance policy, it's going to grow and compound faster than the interest you're receiving typically and you don't pay taxes on that amount. So we really like this and this is a way where we can have tax advantages. We can set aside wealth, we have the benefits of life insurance for our heirs and we're not really compromising our liquidity so much if you structure this properly and you can borrow from it to utilize all these other strategies. So make sure you're considering life insurance and there's all sorts of ways to structure this but life insurance as one place to deploy your cash, where it can grow in a tax advantage manner and you can pair it with all these other things Really cool stuff here.
Speaker 1:I mean, we can go down a whole bunch of rabbit holes, but there's some really cool ideas where you can do financed premium life insurance, where essentially you're using bank's money to maximize how much goes into the life insurance. So, even though the ROI might not be as high, you're using other people's money to build this, fund, this policy. And then there's private placement life insurance, infinite banking. There's all these things that people do. There's some really resourceful and intelligent and creative people. Talk to us. We can send you some referrals that can help you consider and set that up. I'm not a life insurance agent. I think it's really cool, very enthusiastic about it, but the tax code is challenging enough and infinite enough that I'm going to stay in my lane here. But you look into it, talk to us. We'll connect you with the right people and help you make some decisions.
Speaker 1:Another thing I want you to think about here is partnership interest. This is especially true if you are a high income earner and you're looking for diversification. You can have partnership interest into real estate, into other businesses. We see all sorts of interesting ways where you can have partnership interest into vehicles that are going to produce really high returns. Partnership interest into livestock, all these private placements, alternative investment vehicles, private debt funds you can have partnership interest in hard money lending funds. There's so many really fun and interesting ways that you can take part in some more exclusive types of businesses like car washes and laundromats, where you put the cash in and again you see benefits of depreciation many times and you're building your wealth and really just really seeing a way to diversify and be in that really top 1%, taking advantage of those opportunities outside of Wall Street, outside of the masses, that give you greater tax savings and give you greater compounding growth of wealth and cash flow.
Speaker 1:And I don't have anything against Wall Street and stock investing, but what we find here is the people who are educated on these more exclusive private deals are much more enthusiastic about it and they will tell you that these are going to produce higher returns than the stock market. And they're also going to tell you that and this now I can't. Again, I'm not an investment advisor, I don't pretend to be one, but I will say that the tax advantages are almost always far greater than investing into stock markets and index funds. So, at risk of me contradicting myself, I'm going to tell you about another thing that you can do to put your money into, and that is stocks. So I still think we should consider investing into stocks. Some people like to have fun and day trade or invest into companies they think are cool. I'm not against it. I don't really think that I should dabble in trying to understand the stock market. I still have to dedicate so many hours of my life to staying on top of the tax code. But we have seen lots of people seeing wonderful returns from mutual fundings and index funds and have some fun investing.
Speaker 1:But the thing I like about stocks is, again, you're still seeing advantages on the favorable treatment of your dividends and your capital gains. Those are going to be taxed, typically at 15 to 20 percent. You may pay an extra 3.8 percent for net investment income and state taxes, but still for most of you guys, the capital gains and dividend income is going to be taxed at a lower rate than what you're paying at your job or your business. So there are still tax advantages. And another thing I like to consider here is you can borrow against your stock portfolio. So let's say, in the future you need some liquidity and you don't want to be paying taxes. You're in a 20% cap gains rate. You live in California. Then there's net investment paying taxes. You're in a 20% cap gains rate. You live in California, then there's net investment income taxes. All of a sudden, a third of your income is going to the government. If you have even long-term cap gain, well, you can still borrow and use it as collateral and borrow against your stocks to invest in other stuff. Obviously, I'm not advising you to do that, but you can consider that and we do see people making those decisions. So that's a way to take away some of the funds without paying taxes.
Speaker 1:And another thing I want you to think about here is Roth conversions. If you find that you have the ability to take advantage of massive tax savings and that'll continue and you have the cash on hand, you can consider now maybe putting some funds into the Roth account. You can do a Roth conversion put the 401k, put the IRA into the Roth. That's not really. You're not going to really be able to do that with your refund, but I do want you to consider the fact that now that you jumped into this lower bracket, now that you have opportunities, maybe you have the same opportunities or even greater opportunities in the current year. You can't do this retroactively, but you can put your funds into the Roth and you can use more you can.
Speaker 1:Maybe you can pair this with your tax savings. Maybe your tax savings are going into the oil and gas or going into the real estate and you have the ability to reduce your taxes. Or maybe you're buying assets that are driving you into a low bracket. Maybe you pair that with some Roth conversions. You're eventually going to be paying taxes on that IRA on 401ks, and instead of waiting until who knows what bracket you're in in the future, you can move that money over into the Roth right now. The deductions you create from these other strategies, from the losses from the oil and gas and the assets, or bonus depreciation on the cost eggs, will offset that conversion. And now you have money in that tax-free bucket in the Roth IRA, growing, compounding and accumulating completely tax-free in that Roth IRA, really creating a very powerful vehicle to build wealth in a tax advantage manner.
Speaker 1:And then, once it's in the Roth, sky's the limit on what you can do with it. You can invest into stock markets, you can invest into cryptocurrency with your Roth account. How cool is that? And I see a lot of people just dumping funds into the crypto, not thinking about what's the tax implications of that. Move money into the Roth. You can put the money into your 401k and IRA and then quickly convert it into the Roth and then you can invest with the Roth. Why not think about long-term, what are the tax implications and how can we win the tax game on the profits from this? Right now, I also see a lot of people do hard money lending with the Roth. There's a lot of really cool stuff you can do, so don't neglect, don't ignore the Roth conversion being paired with all of these other strategies.
Speaker 1:So I threw a lot at you guys, but what I want you to think about here is it's not just about saving money in your taxes in year one. It's not just about reducing your taxes. Our job isn't over once we reduce your taxes. We want to create long-term tax savings, long-term wealth. How can we grow and compound this tax savings into this much bigger, greater vehicle so you can retire early, so you can maybe have more funds to invest into the business or lifestyle of your dreams, really thinking long-term with our tax planning. We call it holistic tax planning, where we're looking at all of your income sources, all of your opportunities, risks and goals now and into the future, and how can we align all that to make the most attractive and the most advantageous decisions for you?
Speaker 1:Hope you enjoyed this conversation. If you found value, I hope you subscribe. And also, if you know anyone who can use our service, or you, go to prosperalcpacom, apply and we are hiring. So if you are a CPA and you're done with working for whoever or maybe you're done running your own business because, I'll be honest, sometimes being an entrepreneur kind of sucks apply. Go to prosperalcpacom, slash recruiting. We'd love to hear from you if you find this stuff interesting and you can share these concepts with our clients. Have a great.