The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 105 - Tax Planning for the Time-Strapped Professionals
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...
Take our free Tax Planning Checklist & learn about what tax savings may be available for you in our minicourse at https://taxplanningchecklist.com
Tax planning doesn't have to consume your time or require expertise to be effective, especially for professionals who feel overwhelmed or too busy to implement complex strategies.
• Retirement accounts offer substantial tax deferral opportunities with minimal ongoing effort
• You can contribute to tax-deferred accounts after year-end but before filing taxes
• Liquidity concerns can be addressed through strategic timing and borrowing options
• Advanced charitable planning creates massive deductions for those earning $500K+
• Oil and gas investments provide truly passive losses that offset all income types
• Distributions from oil and gas investments receive favorable tax treatment
• Simple systems and professional support capture legitimate deductions without constant vigilance
• S-corporation salary optimization can save six figures with proper guidance
• Home office deductions and accountable plans require minimal effort but deliver real savings
Visit prosperalcpa.com/apply to learn how we can help simplify your tax planning. Take our free mini-course at taxplanningchecklist.com.
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...
Take our free Tax Planning Checklist & learn about what tax savings may be available for you in our minicourse at https://taxplanningchecklist.com
So I recently heard a very interesting conversation that really had me thinking, and it was with a physician and their tax advisor. And the physician is saying well, hey, you know, I really want to get an ROI from the tax advisory that you're giving me here, but you know, I suck at this stuff. I just don't have the time. You know, I'm just so busy as a physician I'm not good at this stuff. I just don't have the time. You know, I'm just so busy as a physician, I'm not good at this stuff. So I'm just wondering how am I going to get the return on investment of this? You know I'm paying you for these advisory services. I mean, I know there's stuff out there, but I suck at this stuff. So it made me thinking to myself there's probably a lot of you out there who hear all these cool ideas and maybe you see these snippets of things that you can do, but it's overwhelming, right? So we tell you, you know we share all these ideas. Yeah, you can hire the kids, you can make business purposes of this and do that. You know, purchase this property here and then, at the end of the day, a lot of these people are getting this advice and you're feeling overwhelmed with information. You're drinking from a fire hose and, at the end of the day, a lot of these people are getting this advice and you're feeling overwhelmed with information. You're drinking from a fire hose and, at the end of the day, nothing gets done.
Speaker 1:So today, what we're going to talk about is how to reduce your taxes and how to have an effective tax planning strategy. If you suck with your tax planning initiatives, this is for those of you who don't have the time, or maybe you just don't like learning about the stuff. You just want someone to tell you what to do, and do as minimal as possible and yet still see the benefits of reducing your taxes, and ideally, you'll be reducing your taxes with a tax advisor. Obviously, if you want to work with us, you can go to prosperalcpacom slash apply, but let's get into the details here. There's a lot of things we can still do here, but let's talk about what we don't want to do. Let's talk about things that I'm going to put off the table here. Okay, so here's some of the things that's going to require your initiative and for you to take action to reduce your taxes Things like hiring the kids and creating a job and putting them on payroll.
Speaker 1:That may be too much for you. You're Augusta Rule, where you're turning your home into a rental to your company and hosting events at your house. Maybe you don't want people coming over your house and you don't feel like documenting it. I get that Turning travel and meals into tax write-offs. Maybe you don't want to travel, you don't want to leave your home and you just can't come up with any good ideas here and you just want to be left the heck alone, totally fine. Or maybe you're a W-2 earner and you don't even have the ability to create write-offs from a business right now, so these things are off the table.
Speaker 1:A lot of the ideas that we share have to do with having businesses, so. So a lot of the ideas that we share have to do with having businesses. So renting out solar panels or having short-term rentals, having real estate professional tax status with long-term rentals, having side businesses and purchasing and renting out assets these are all things where we're creating additional revenue streams that create. Even if they're profitable, they're going to create losses on your return and save you on taxes. But these things all require or most of them will require material participation, and that means you're going to need to spend at least 100 hours and sometimes maybe more, depending on what we're doing here. So that's probably going to be out of the off the table for you because you're probably working too hard and too much and your dollar per hour value in your current career is just too high to take on any side hustle. Obviously, maybe your spouse can take it over, but we're going to assume that that's not an option.
Speaker 1:And then another thing that is probably off the table here don't worry, we'll get to the good stuff is there are some really funky, fancy, sexy trust structures where you sell all your assets to a trust and then the trust you borrow it and there's all these sorts of workarounds to not pay taxes. And it's so complex that the time that you have to invest just to understand where to actually get your money and how to use your money is not going to be worth your time and also, for most of our advisors, not worth our time. There's a whole world of advanced and complex trust structures out there. Some of them are very aggressive and borderline non-compliant and I just decided I don't want to play that game with. There's a certain niche out there of these common law patented, copyrighted trusts that are supported by tens of thousands of pages of legal opinions, and we don't go that route, mainly because there's a substance over form argument where you say you're giving and selling your assets, but you're not really doing it and I don't want to get too off topic here but those complex things where you're putting this, your entities and your cash and your assets into this whole, something that resembles like a structure from the Ozarks, like this whole maze of things. We're not going to go down that route either.
Speaker 1:Here's the things we're going to talk about Simple. We want to keep it simple here for you. Now, one of the things I want you to consider is retirement accounts. It may not sound that sexy, but hold on, hear me out here. We have our 401ks and we have our SEP IRAs, where we can put in a portion of our profits and defer them. We can also have our cash balance plans and our pension plans, where you may find that you can actually defer $100,000 to $300,000 per year, and with our SEP IRAs, we can put up to 25% of our income, or $69,000 as of 2024. This is a good chunk of money that we can defer.
Speaker 1:Now here's some of the counter arguments. When we talk about tax deferrals and I think we should really appreciate them more than the credit they get given it's just a lot of people get really excited about creating permanent tax reduction instead of deferrals and paying it later. When you do these strategies especially if you're going to increase someone's salary to do this, you may be able to get a QBI deduction. So let's say you're going to pay someone in defer. If it's your spouse, let's say you pay your spouse a certain amount and that amount goes into a deferred account. You not only write off what you pay your spouse, you also write off. You may be able, under certain circumstances, to write off an additional 50 percent for what we call QBI qualified business income deduction. Really, make sure, now this is hands-off at that point when you're thinking it's right off. An additional 50% for what we call QBI Qualified Business Income Deduction. Really, make sure, now this is hands-off. At that point when you're thinking about QBI, especially to the audience I'm targeting you don't need to think about this. It's just something that a very skillful accountant can identify as an additional opportunity.
Speaker 1:There are also all sorts of advanced ways that you can move the money from the tax deferred account into a Roth or just take it out and pay less taxes than you would have had you done nothing at all. So there are ways where we can invest in assets in your tax deferred accounts, such as oil and gas or real estate and, based on the valuation, at the time you move it into a Roth or distribute it, the taxes are less than the time you move it into a Roth or distribute it, the taxes are less than the amount you've contributed. To say that a little more, simply imagine putting 100K in and the amount that gets taxed when it's moved into the Roth is only 60,000. And then it grows tax-free. The Roth. Now, again, this should be hands-off for you, though I just want you to understand that this is possible Also for those of you who are in a higher bracket than you will be in future years.
Speaker 1:Obviously you're spreading out the taxation on that income into lower brackets, so you're keeping it away from that highest 37% tax bracket highest 37% tax bracket and when you're doing these tax deferral strategies, you can really just automate it. X percentage can just go into this account. You have someone else set it up. Hopefully you have a financial advisor or some sort of resource, whether it's a TPA, third-party administrator, someone who's just going to take this and take the money and put it in a tax-deferred account and you don't really have to make any decisions and then eventually you just have the experts move it and time the movement into the Roths or into your personal accounts in the most advantageous manner into the Roths or into your personal accounts in the most advantageous manner.
Speaker 1:Now, if you are a W-2 and because most of our audience here is above the thresholds where you can defer your taxes with a traditional IRA, you can still put your money in. It doesn't defer your taxes. But now you can eventually move it into the Roth so you and your spouse can put in $7,000 each, that's $14,000 rolled into a Roth right away. If you do that for 10 years and it grows and compounds each year, just think about what kind of wealth we can create there. I don't have the numbers in front of me, but we can legitimately create seven figures of wealth if we do this continuously and it grows and compounds and now you have this amazing tax-free investment vehicle that's growing inside of that Roth. And one thing I like about the Roth also is you don't have to wait until you're 59 and a half to take the principal amount out. So whatever you put into the Roth after tax not the portion that's grown with the investment in the Roth. So let's say you invested a hundred and it grew to 120, that a hundred thousand you can take out before you're 59 and a half. So it's not as much of a compromise in liquidity.
Speaker 1:To backtrack on the tax deferral strategies as well, a lot of people are really hesitant because of the liquidity things. The liquidity concerns what if I need the cash now? I know I'm deferring taxes, but what if we have a rainy day that hits and I really want to put money, pump it back into my business? Well, here's a couple of things you can think about with these tax deferral accounts that may encourage you to still invest with these tax deferral accounts in spite of these limitations. One is you don't have to put the money into the tax deferral accounts in the year you're getting the deduction. You can wait and see how things play out.
Speaker 1:So, for instance, I don't let's say it's 2020, let's talk about the current year. It's 2025 and I'm thinking about putting money into a solo 401k, but I don't know if I need that money right away. Also, I don't know what tax bracket I'm going to be in next year. I think my tax bracket is going to drop because I'm going to buy a bunch of real estate next year and do a cost seg, but I don't know. So how am I going to? Why are you expecting me to decide if I want to shell out money this year and then not be able to touch it until I'm almost 60 years old?
Speaker 1:So here's a couple ideas. You just can create the account, create the tax deferred retirement account. You don't even have to put the money into the account until the. You don't have to put the money into the account in the year that you're getting the tax deferral. So let me just say this again a little more clearly so I can see how the year plays out and then later on, in 2026, where we see hopefully by then we know how the tax law goes down and we have a little more clarity on what our profit is looking like or maybe we've closed our books by now and actually know what our net income is and how much is subject to tax we have a clear picture of what 2026 is looking like, not just in the tax landscape, but also in our businesses and after the end of the year, but before we file, we can make that contribution and get the tax deferrals. Not only do we have more time to gain clarity, we also have the time value of money. We have access to the cash sooner. You can also borrow from your tax deferred vehicles. You can borrow the lesser of 50% or $50,000. So you can gain access to some of those funds. And if you're strategically timing a Roth, that post tax amount in the Roth that's principal, the amount that you put in but not the amount that's grown from the investments. You can also take that out before you're 59 and a half.
Speaker 1:Now let's talk about some strategies here that are more exclusive to the higher income earners and that is advanced charitable planning. And that is advanced charitable planning or I guess we could call this advanced charitable tax deductions here. So what I would say here is if you make over a half a million dollars a year, you start thinking about this. We've seen we've done some of our strategies for folks making as little as a quarter million, but you should really start thinking about it at a half a million If you're making a million dollars of profit, a million dollars of taxable income subject to a lot of taxation. If your advisor isn't at least sharing with you the possibilities of an advanced charitable deduction strategy, just know you may be overpaying in the hundreds of thousands of dollars in taxes by being unaware of what's possible here.
Speaker 1:All of the super affluent are using charitable deduction strategies to drive down taxes. Some of them are going to require time right. So some of these things are not going to be of your interest. So you see, a lot of folks you got the Bill and Melinda Gates Foundation, like you got all these affluent billionaires donating their stocks. Let me tell you something the reason why they're donating these stocks and getting these huge charitable write-offs and pledging their money to charities like how Warren Buffett pledges his wealth to charity at his date of death is not just because they're good people.
Speaker 1:Okay, let me give you a hint there. It's because there's incredible tax advantages. Some of these things are going to just be simple transactions that more sophisticated professionals and specialists will advise you on, but some of these things will require work which, let's face it, a lot of you guys don't want to do. So if you were to really take this like, if you really want to take this to the point where you can be active. You could start your own private family foundation, you can start your own nonprofit, and there's all sorts of tax incentives and opportunities here. But you don't have to do that. Incentives and opportunities here, but you don't have to do that.
Speaker 1:There are much simpler ways to get massive six and seven figure charitable tax deductions that really are as painless and really take as little time as possible. What I mean is, if you work with the right advisor and if you have access to some of these advanced charitable deduction strategies, you will find that the savings from the charitable deduction strategy may be greater than the cost to create it. For example, imagine spending $100,000 for $200 in charitable deduction tax savings. This is a possible scenario and you do not have to run a charity. You don't have to report very much at all. You just cash goes into an account or an investment and you get a K-1 or you have an advisor that uses actuaries, tell you how much you are going to report on your Schedule A for your charitable tax deduction, and it's pretty hands off here. You really just got to have somewhat reliable projections of your profits. It doesn't have to be perfect and this could potentially create life changing tax savings and you really don't do very much at all.
Speaker 1:Another strategy that I like here is oil and gas investing. You're not putting on the hard hat and going down to the wells and drilling and getting oil shooting up in your mouth, so don't worry about material and you don't have to worry about material participation. You know, with rentals you got to deal with putting a certain amount of time in and controlling the assets. None of that really matters with oil and gas investing. It's a truly passive investment and it's really the only truly passive investment I know of that creates business losses that can offset your income, meaning you get business losses that drive down your adjusted gross income and you show a loss on paper, but you don't have to do anything at all to use those losses to offset your other sources of income, including your W-2, including your business income, including your capital gains income. What you really need here is just an introduction to a reliable source, whose oil and gas strategy, where you have working interest into oil and gas, where that investment is going to align with your financial goals and your risk tolerance and you're typically going to just get a K-1 showing the losses and those losses, hit your 1040 and drive down your taxes in the year you put your money in. Now not only do you create a tax loss and you are paying for that tax loss because you are investing into oil and gas and you are taking on some risk and there's a spectrum of riskier versus less risky types of oil and gas investments and some will have greater ROIs. But when the money starts coming and oftentimes these can be very profitable the money is tax advantaged, so you create a tax reduction.
Speaker 1:But when the money comes in, you can potentially get a QBI deduction. Remember we talked about earlier where you don't pay taxes on 20% of the profits. Really Sorry, yeah, 20% of the profits. I messed that up. I was confusing QBI and depletion. So you have the potential here to have a QBI deduction offsetting 20% of the profits.
Speaker 1:Under the right scenario. You also may be able to get a depletion deduction where you write off 15% of the revenue and revenue is greater than the profit. So you may be able to get a depletion deduction in excess of the money of 15% coming in, where a good chunk of the money coming into your bank account from this investment is less. There's a difference between what comes in and what you're paying on taxes. So imagine you bring in $100,000 in distributions from this oil and gas investments. You're not going to pay taxes on the full $100,000 because you may be able to get a 20% QBI deduction. By the way, that might increase 23% and you may also get the 15% of revenue depletion allowance deduction here. So these are paper losses. So I love scenarios where the money coming in is not entirely taxed, a portion of it is untaxed. We have a paper deduction right, kind of like depreciation, but you're not taking on debt. So we really like oil and gas for affluent people where they can just put their money in somewhere that drives down their taxes, gives them future profits and those profits are tax advantaged and taxed more favorably than other sources of income.
Speaker 1:Some other things I want you to think about here is by just having a skillful accountant. There's a lot of things that we can make happen here. One of the things I'm thinking about here is we have a client where we just adjusted his officer's compensation the amount that he pays himself out of his S corporation and it saved him like $150,000 just by adjusting the amount he pays himself as a salary, and we actually became more compliant by doing it. Some other things to consider here is when you have a bookkeeper and someone who really knows your stuff, they'll help capture all the write-offs. Having good systems and having all your expenses coming out of the same business credit card can also help you out with capturing all those write-offs.
Speaker 1:You don't have to be a write-off ninja. Maybe you're unable to write off all of your life and you see people all the time talking about write off your car and write off your vacation, write off your mom and your sister and your kids and your cats and your dogs and your dermatologist. You don't have to do that, but you're kind of stretching what's allowable in the tax law. But certainly with good systems, reliable design of how you're tracking and recording your write-offs in an organized way is going to allow you to at least capture the write-offs that you're illegally entitled to and not letting things fall through the cracks. And then the little things like the home office deduction, the accountable plan, how you reimburse yourself through the S-Corp, can help you out along the way as well, and your advisor can help you out with those calculations and transactions.
Speaker 1:Now, if you're interested in getting involved in a little bit more of activity here. Certainly, investing into a skilled professional who can hold you accountable and check in on you, kind of like a personal trainer, could potentially be helpful as well. So maybe you are interested in some of these ideas that require your activity. But you just got too much going on in your life. As soon as you hear it from your current advisor or read about it, you say that looks great, that sounds really cool. But then you get a call you got to take out a fire here, you got to interview this person, you got to calm down your client here and fix this and things get overwhelming and things just slip. So having someone who can really work more closely with you and track these things and check in on you on the status of how these actions that you should be taking are going.
Speaker 1:So for a select few of our clients where it's worth the investment for them, we do get a little more involved in keeping track of their write-offs and some of the more granular things they should do. For most of you, it's likely not worth the time for our highest tier investment of services just because you likely don't have the time and unless you're in a really high bracket and we can create significant savings. You're probably better fit for our normal level of services, but anyways, these are just things to think about as far as what's possible for you. For those of you a little overwhelmed by all this information coming at you, feeling like you're're unable to reduce your taxes because of the complexities and the time commitments, don't worry, there is a solution. There is hope for you out there. As we just discussed, things such as retirement accounts, advanced charitable deduction strategies we have, having a good account, having good systems and, of course, oil and gas investing and tax deferral vehicles these are all things that can make it possible for you to drive down your taxes without getting overwhelmed by complexity and putting too much time into your tax plan. Again, really hope this helps you out in gaining clarity into what's possible for you and your situation.
Speaker 1:If you're feeling a little overwhelmed, you don't have to listen to every episode of my podcast and read a million books. You just need a good collaborative partner. If you want to learn a little more about how we can help you, go to prosperalcpacom. Slash apply Also. Take our free mini course at taxplanningchecklistcom. Slash apply also. Take our free mini course at taxplaningchecklistcom. Have a great day.