The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 102 - Our Exclusive Advanced Tax Strategies in Action
Tax planning extends far beyond basic strategies, with sophisticated approaches typically reserved for the ultra-wealthy that can create substantial tax savings and wealth-building opportunities for business owners and investors.
• Qualified Opportunity Zone Funds offering multiple benefits including capital gain deferral, material participation opportunities, and tax reduction
• Solar panel investments for business properties providing tax credits, depreciation benefits, and long-term energy cost savings
• 1031 exchanges into oil and gas investments for passive income with continued tax advantages
• Self-insurance strategies creating deductible business expenses while maintaining control of funds and building wealth
• Strategic employment of spouses to optimize QBI deductions and increase Social Security benefits
• Premium tax planning services delivering exceptional ROI through comprehensive strategy development
For those interested in learning more about these advanced tax reduction strategies, visit taxplanningchecklist.com or prosperalcpa.com/apply to see if these approaches could benefit your specific situation.
This is going to be a great conversation for those of you interested in learning what are the really advanced, sophisticated, outside of the box, resourceful strategies that you can use if you want to be working with someone who looks at things through a different lens and really leverages the most advanced resources possible for the high-end tax planning, the stuff reserved for the super wealthy and the ideas that require an intense amount of studying and legal vetting. These are some of the ideas I want to share with you that are going to be out of the box and things that you're not going to find anywhere else and potentially life-saving for some of our clients. So I'm going to share with you a few ideas of some of the things that we are working on that are uncommon, that your current advisor likely will not be sharing with you and you likely won't hear from anywhere else, and these are some of the most fun and interesting out-of-the-box things that we are working on and have tried working on in the past few months, and I just thought I'd have some fun riffing on some of these ideas that we're exploring with some of our clients. The first one I want to discuss with you and this is really fun and you don't normally see this, but we had a client who came to us in May and this client had a major short-term capital gain event.
Speaker 1:Now, remember, short-term capital gains are taxed at your marginal rate. So these short-term cap gains were taxed not only at the highest federal marginal rate of 37%, but then you have your net investment income tax we're talking 40.8% federal taxes and some of these capital gains events, federal taxes and some of these capital gains events. Well, let's face it, they came to us in April, may time, and the capital gain event was in the prior year. So how could we help this person out? They had paid a ton in taxes. Well, if you can look at qualified opportunity zone funds, you have 180 days from the time of the capital gain event. So, even though the year had passed, we were like a week before that 180 day threshold had been reached for that cap gain event.
Speaker 1:So we got the client signed right away and, to be honest, I didn't think that she would be able to make a decision this fast and I told my resource on this topic hey, you know we're signing this girl. She, you know we have an opportunity if we act. You know, today's Friday, we could act by Tuesday, we may be able to save her a pretty penny. And, um, I think it was around like 50,000 of savings. We can save her with this transaction by deferring the gain. Actually, I think it was in the mid 60s for about 150,000 in transactions, but anyways it was significant. And he said, okay, well, that sounds cool, but I'm telling you there's a 99% chance she won't be able to pull the trigger in time. Just from my experience, they need to do all of this back and forth and vetting and usually these deals can't go through that fast. Well, this was a very to my surprise and his surprise. It was a very ambitious client who had a good amount of financial savvy and we actually were able to close on the Qualified Opportunity Zone Fund, on the Qualified Opportunity Zone Fund. And now what we can do is we can amend the 2024 tax return to see the benefit of investing in the Qualified Opportunity Zone Fund and actually deferring the taxes, pulling it out of 2024 and getting a really nice refund. Again, I think it's around the mid 60s, I don't remember the exact amount, but I could report back on that.
Speaker 1:And not only that, but this qualified opportunity zone was an investment into something with solar panels. And further, this was an investment into a partnership with solar panels where the investor my client was able to materially participate. My client was able to materially participate. So all of a sudden, because it's not just a passive investment, we were able to actually treat this as ordinary income. And this is where it gets really exciting.
Speaker 1:Because we were able to get her to participate, we accessed a lot of really exciting opportunities. One the losses became non-passive, so they were able to offset her other sources of income. So we were able to get bonus depreciation on the depreciation of the solar panels. Additionally, the solar panels also got us tax credits. So the government typically pays 30 to 40 percent of these panels up front with the current state of the tax law. So this investment tax credit is also going to hit the client's bank account.
Speaker 1:So not only does that happen, but then when we eventually pay taxes, it's now deferred into 2026. We have her as a client. We get to plan in advance. We can now be proactive and when they do this, when they actually recognize the tax at the end of 26, we revalue the panels and the revaluation reduces the actual taxation that has been deferred. So we're deferring around $150,000. We're saving taxes around the $60,000. And then eventually, when it is taxed, we're not paying a full $150,000. In the future, we're actually going to be paying taxes on a lower amount. On top of that, we're still getting cash flow and revenue rental revenue on the panels because they're business assets generating revenue, and we're using leverage to maximize the tax credits. So, with all these features the leverage to buy large amounts of assets and get the tax credits, the deferral and overall reduction of the capital gains which would have been taxed at the marginal rate, and the tax credits and the ordinary losses that can offset any source of income this was just a grand slam home run. I have some really great resources who do intensive legal vetting of these concepts, and this was just one of the most incredible opportunities and just unique outside of the box things that we got to do. Now we have had strategies that created more savings, but this is just one of those unique instances where things just came together really nicely here and we were able to access strategies you really won't find anywhere else unless you're working with someone who's dedicated their life to uncovering and implementing these advanced tax reduction strategies.
Speaker 1:Another thing that we're working on. This is actually something that failed just because of the timing and I think it was because of just some damage to the property in a hurricane. But we had a client that was looking to sell some short-term rentals and he was just tired of being a landlord. He realized his time was better spent somewhere else and he wanted a more passive vehicle that could further reduce his taxes. A lot of times you can guess the obvious solution or common solution for folks like this, who want to have passive income but where they're not doing anything and can still reduce their taxes and create good cashflow, oil and gas becomes a very, very attractive vehicle.
Speaker 1:Well, we found that we can actually 1031 from the sale of the short-term rental into the oil and gas. So you're deferring the capital gain indefinitely on the profit of the short-term rental and then you're rolling it into an oil and gas investment. Now there are challenges with this because you may have leverage in the short-term rental and the replacement property has to be equal or greater. So to simplify what I'm saying here, let's say you owe half a million on this investment. Well, you have to roll your replacement property in a 1031. Essentially, you have to sell this short term rental and buy and the replacement asset, which is oil and gas, has to be of equal value. You may not be able to borrow another half million to cover it. So you know, let's say you take all your proceeds, some of it pays off the bank. Whatever you pay off the bank, you have to get back in some way. Maybe you pull from your savings to put it to the oil and gas, because if you sell in this example here, if you sell property for a million dollars and maybe a good chunk goes to pay off the bank, you don't have that full million to buy a million dollars of oil and gas. But the client had the liquidity to do it. The sale didn't go through over the short-term rental, so we didn't get to do it. But still it's a new opportunity that we are exploring with our clients looking to transition out of some of their rentals and into diversing their portfolio to have more oil and gas investments.
Speaker 1:Another strategy and we've talked about this and we're finally implementing and, by the way, if you're interested, you better hurry up because the upcoming tax law is going is so cool and we talked about earlier but this is different Solar panels for rental properties or business properties because we get tax credits and depreciation. So the government is going to pay for a good chunk of this panel to be installed onto your rental or your business to be installed onto your rental or your business and we are also reducing or mitigating or leveling out the costs here, because, as energy costs go up, you already have this fixed cost by which you're paying off the loan to finance the purchase of your solar panels. So overall, we're going to wind up reducing our energy costs while reducing our taxes at the same time from the bonus, depreciation and the tax credits. So this is really interesting and appealing to our short-term rental investors, because our short-term rental investors are able to. They're already paying for the energy. So, unlike our long-term rental investors, where maybe their tents are already responsible for that, so it's a little trickier to switch things over they're already covering the energy costs and the electricity costs. So when they put in these solar panels, now the electricity cost is covered and now the IRS is paying for that. How awesome is that the IRS is paying for that. How awesome is that?
Speaker 1:Some other concepts that we are implementing right now in the works of building are some spinoff entities and, in particular, with insurance companies and you may have heard of how you can self-insure and the potential tax savings opportunities that come with this, while your primary motive is to mitigate risk. So we have a client who has a business that has a lot of risk. They transport people to and from the hospital. You can imagine they're taking on risk with managing all these vehicles and these drivers and there are uninsurable risks. So one opportunity here is you create a corporation and you this corporation is an insurance company and you pay insurance to insure against the possibility of something going wrong with the vehicle or some sort of economic calamity or some sort of lawsuit. Now you have an insurance policy against these items ordinary and necessary business deduction and what could potentially happen now is when you have a C corporation that's an insurance company under the right circumstances, when they receive those funds it's untaxable. So it's as though you have an accounts payable. So eventually those insurance proceeds are going to be due back to you. Well, you get an expense. It goes to a company that you own that does not pay taxes on it. So the net effect here is essentially you're paying your insurance company for your insurance costs. You get a write-off, but you still maintain control of the cash and it can grow and compound and be reinvested. So that has been a really great opportunity, not just because of the tax advantages, but also because of the risk mitigation and that they now have a fund. They now have an insurance company that is going to take those proceeds and grow them over time and that they can pull from to cover against those risks.
Speaker 1:And where this gets really exciting for some of our clients is when we have clients that are syndicating deals and have large real estate portfolios. They'll be the first to tell you that these insurance companies are big pains in the neck. A lot of times they don't even pay out what they should be paying out on the damages. And we saw this with Hurricane Helene, where we had clients with large real estate portfolios that took tons of damages. And we saw this with Hurricane Helene, where we had clients with large real estate portfolios that took tons of damages. They had to replace roofs, hundreds of thousands and millions of dollars of damages, but the deductibles were so high they didn't get any help from their insurance companies. So they are also looking to create self-insurance companies to help mitigate the risk and now they have more control and they're able to see those benefits when needed. And what's really cool is if you create these insurance companies to insure against these risks of damage and hurricanes and fires, if you have a partnership or a large partnership and we see a lot of these real estate syndicators will have lots of passive investors. Your passive investors are all going to help with paying the insurance proceeds and the insurance costs. Now, whatever insurance costs remain that do not go, that are unutilized, so whatever insurance costs are unneeded remain in the insurance company, which, if you own the insurance company for your real estate syndications, you're being untaxed. Well, under certain circumstances the proceeds may be taxed to the insurance company, but at the end of the day, this may turn into a wealth building vehicle if there is remaining funds, and that could be an additional revenue source and wealth building source in the millions or tens of millions over time here. So we're reducing risk, potentially creating massive tax savings and also building wealth in this additional spinoff entity.
Speaker 1:And then another concept here that we're now exploring more with our clients is maybe taking a deeper look into social security benefits and the QBI deduction. So QBI deduction, or qualified business income deduction, allows you to write off 20% of your profits in your business, but there are all these limitations and phase outs and if you are highly profitable you may not be allowed to take very much, if any of it at all. So one of the ideas that we're doing here with a stack is we have a client with high income tax, at the 37% tax bracket, and they're getting very little of this QBI deduction because at a certain income threshold it's capped. You're not allowed to take it. So what can we do to increase the QBI? Well, there's an additional layer to this where if you increase the wages of your company, you increase the deduction by 50% of the wage.
Speaker 1:So what we're considering doing here is and we're going to be working on it this week is you hire the spouse. There's a couple of advantages now. Now we get the opportunity. So, whatever we pay the spouse, we get a 50% additional deduction of QBI. So we pay the spouse $100,000. We don't just get a $100,000. It's not really a $100,000 tax deduction because it's taxed to the spouse, but we now access a 50% QBI deduction. So if you pay your spouse $100,000, you may find that you actually reduce your taxable income by $50,000.
Speaker 1:Now some of you folks who are tax geeks realize that this may trigger FICA taxes. But now what we realize is that the income tax brackets we are at is, if you really get granular and want to think about FICA taxes, social Security and Medicare, a lot of you guys are thinking that you want to just avoid FICA. At Social Security and Medicare, a lot of you guys are thinking that you want to just avoid FICA at all costs. Do everything we can to avoid FICA. But what you're failing to realize is, with your tax advisor and especially if you're watching, just using the advice you find on social media is you may find that FICA tax is a much better tax than federal taxes. So when we pay the spouse, we're exchanging the federal taxes. Where we pay taxes, we never get it back, and now we're reducing that tax. We're paying more taxes, but it's the FICA where we're now investing into the client's financial future and increasing the social security benefits to pay for her retirement. By the way, those social security benefits a portion of them are untaxed and it could be potentially tax-admitted. All sorts of planning opportunities with that as well. And then when we hire our spouse, we can now create fringe benefits, tax-deferred accounts and also some medical expense deductions that we normally could not access if we had an S-corp or C-corp. So lots of really cool opportunities here.
Speaker 1:I probably overwhelmed you, especially at the end talking about FICA and QBI, unless you're a CPA listening. But all you got to know is when you get really, when you have an opportunity, especially at high income brackets, you can get really granular and look at really not only knows the tax law but fully is aware of all your situation and all your sources of income to do that holistic tax planning and really has the time and resources to dive deep into further exploring how these opportunities could potentially apply to you. And a $5,000 tax plan is not going to give them the time and resources to do it. So these are going to be more sophisticated clients paying at least $10,000 for a tax plan, which sounds like a lot for some of you listening, but under the right circumstances this could create hundreds of thousands or millions of dollars of wealth creation and the return on investment into the tax plan can be one of the greatest investments you'll ever make and also one of the most predictable ROIs you'll ever find when it comes to tax savings. So I hope this got you guys interested in what's possible with advanced tax reduction.
Speaker 1:In all these examples here, we were able to find ideas that are uncommon and because we are a premium service, we are able to share these ideas. Now, don't be intimidated. You know I just did an episode on why tax planning is applicable to everyone. We do have offers that are more affordable, and if you go to prosperalcpacom slash tax navigator, you'll see that package and you'll find opportunities that are applicable to you as well. So if you want to learn more, you can take our mini course at taxplanningchecklistcom or prosperalcpacom slash apply, and I really hope that we can start sharing with you some of these ideas or, at the very least, get on our mailing list by going to the taxplanningchecklistcom so you can start sharing with you some of these ideas. Or, at the very least, get on our mailing list by going to the taxbendingchecklistcom so you can start thinking about being proactive with your taxes and winning the tax game. Have a wonderful day.