The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 112 - Navigating Complexities in Tax & Wealth Planning w/ Ryan Sweet
Mark Perlberg and Brian Sweet discuss strategies for building and protecting wealth beyond tax savings, with an emphasis on what to do with cash after receiving tax refunds from bonus depreciation and other tax benefits. They explore holistic wealth planning approaches that balance immediate tax benefits with lifetime tax minimization.
• Brian Sweet shares his 47 years of experience in the wealth management business, serving clients across 38 states
• Entrepreneurs with volatile income should prioritize having 6+ months of cash reserves before pursuing other investment strategies
• Tax-efficient investment vehicles can help control when and how investment gains are recognized
• The difference between minimizing taxes today versus minimizing lifetime tax burden requires comprehensive planning
• Current historically low tax rates create opportunities for strategic moves like Roth conversions
• Advanced capital gains strategies can generate offsetting losses, potentially turning a $1M gain into just $360K taxable
• One client saved $2M in taxes through strategic Roth conversions alone
• Working with qualified professionals is essential as DIY tax planning often misses sophisticated opportunities
• Future tax rates will almost certainly increase due to growing national debt
To learn more about wealth management strategies, contact Brian at bryan@sweetfinancial.com or visit sweetfinancial.com. For tax planning assistance, visit prosperlcpa.com/apply.
Okay, so welcome to the Mark Probert CPA podcast and YouTube channel. And you guys are probably really excited this time of year with being able to take 100% bonus depreciation, and the time is better than ever to completely eliminate your taxes. How exciting is that? But you know we're not when we talk about why are we reducing our taxes, right? Why are we and what are we going to do with it, right? So you have all this money. Some of you guys especially you high W2 earners you get a massive refund.
Speaker 1:What are you going to do with this cash? To grow it and then protect it from Uncle Sam? So there's only so much we can do and we will help you out with that process. We're going to show you tax-advantaged investments as our clients and there's so many ways to do it. But there are other things that are outside of our expertise and, in particular, when this comes to managing your portfolios of stocks and retirement account planning and estate planning. There's a whole other world of advisory and needs that you need to build and grow your wealth and protect that wealth as it grows.
Speaker 1:So I'm excited to have Brian Sweet today of Sweet Financial. He is going to. We're going to talk about some of the strategies that he's doing. There are some things that he and I both do and he's going to share with you some of the ideas and concepts that he's sharing with his client that are definitely going to be applicable to you if you are in our audience of real estate investors, high-income earners and entrepreneurs. So can you introduce yourself in 60 seconds or less and tell us a little bit more about what you do and how you help people out?
Speaker 2:Well, great to be on the podcast, mark. Thanks for having me. So, brian Sweet, I'm in a small town of Fairmont, minnesota. I've been in the wealth management business for 47 years. I have clients in 38 states. 47 years, I have clients in 38 states and best way to describe what we do is holistic financial planning with an emphasis on people at or in retirement.
Speaker 1:Fantastic, and so you know we have. So let's talk about some of our clients here not only our clients, but some of our audience here, and we have so many of these guys who are, you know, they're buying real estate, they're doing cost exits and now they're getting these massive refunds at the W-2s or they're just not paying as much taxes as they have in the past and bonus depreciation was made permanent. So this is the first time where we see 100% bonus depreciation made permanent. How permanent is it? We'll see, right, but there's no chance, there's no plan, of phasing it out as there was in the past.
Speaker 1:Maybe, if one of these days the government decides that it doesn't want to be in debt up to their knees or really up to their eyeballs in debt, maybe this will not be a permanent thing, but right now it's expected to be permanent. At least, that's what the plan is. So we were getting these massive tax savings, but it's not just about getting a refund here, but it's about what do we do with our tax refunds here and what are some of the conversations you're having with folks who are in tax advanced situations? They're entrepreneurs. They don't know how much they're going to make every year. These entrepreneurs have much more volatile income, and what's most important for a lot of these guys is that they are protected, that they have something they can fall back on.
Speaker 2:Yeah, I think one of the key things, especially if you're an entrepreneur of the key things, especially if you're an entrepreneur the uncertainty of cash flow and income from time to time. So I always err on the side of being conservative. So one of my first conversations or discussions with people is, you know, making sure they have a very safe, secure money market type option where, if things go astray, they have a resource where they can maintain their cash flows and standard of living without having to do something that they don't want to do, like sell something at an inappropriate time.
Speaker 2:So I mean, that would be the first thing and getting a really good feel. And once you have, you know, a comfort level and that depends on different people you might keep six months of cash flow, you might keep longer. It also depends on any large lump sum purchases you might be making. If you're going to do them in cash, then you know we look at a lot of other strategies beyond that.
Speaker 1:then Tell me specifically a little more about some of these vehicles. Well, as far as the excess cash goes, yeah, and what type of investments are we talking about here?
Speaker 2:Yeah Well, whereas you have a really big focus in real estate, we would be more in the planning side. So lots of strategies using ETFs, individual stock portfolios, those kinds of things, and then there's some interesting things that I'm sure we'll talk about that help offset taxes on those vehicles also. So we look at doing very tax efficient or tax managed kind of accounts where they don't generate ongoing capital gains. We also look at the type of asset that it's in and typically, if you're getting refunds, that's not going to go into a retirement account specifically. So having something that's got a tax managed component where you can control the future taxation and not generate any additional current capital gains or dividend income, is always important.
Speaker 1:So some thoughts I have here and I've been thinking about this myself and my clients is when we think about long-term planning, so we have retirement planning and estate planning, and when we do this, a lot of you are going to have money in a retirement account, you have money in the stock market and you may also have money in real estate and you may also have your business that you're eventually going to sell. So you have all these things that you're going to sell, and then on top of that, we got a plan for social security and social security benefits here. So we have all these moving pieces and this is why, like I said, we can help you out a lot. We're going to show you the tax implications. We do a ton of business exit planning. It can be very powerful.
Speaker 1:But what you have to think about here is when you move towards retirement and into estate planning now you shouldn't be thinking about it just at that time. You should be thinking about it from day one. Now, you shouldn't be thinking about it just at that time. You should be thinking about it from day one. But then there's going to be an additional conversation when we start thinking about how are we going to take these proceeds, whether it's from the sale of our business, social security, potential stock gains, potential sale of real estate, withdrawals from our different retirement accounts. How do you look at the mix of all this stuff and what kind of conversations are you having with clients on the most tax-efficient and also the most economical way to take money out of all these different pieces that are going to make up the retirement and also the estate?
Speaker 2:Yeah, I totally agree. Where all the work begins is when you say go from you know retirement into your next chapter. And accumulating money, as we all know is, you know, can be, if you're disciplined, pretty easy. But it's the coordination of all of your assets and your estate planning that really becomes. I would say, like 90% of the work I do is from the point of time when a client's retired. But what we like to do is look at the big picture and we get a lot of clients that say I want to pay the least amount of tax.
Speaker 2:Well, I think it's an interesting question the least amount of tax today or this year, or the least amount of tax over your lifetime, or what are you referring to? And then, as you alluded to, there's Social Security, there's retirement accounts and there's different kinds of retirement accounts. So IRAs, 401ks are always taxed assets. Roth accounts are never taxed assets. Roth accounts are never taxed assets. Then you've got dividends and interest and all of those items. And then you also have to factor in well, what are the tax rates going to be? And, as we just had passed the one big beautiful bill, the tax rates are going to stay the same here for the next four years or so.
Speaker 2:You know gives people a little confidence or ability to plan for a little shorter period of time. But you really, in my opinion, you want to look at how, over my lifetime or some 20 year period, but not just any one year, because a decision you make to pay the least amount of tax today could actually come back and harm you down the road. But you don't know it unless you plan for it. And so we like to just run analyses that take all of those variables into consideration and then also take into consideration, like Roth, conversions. So if you wanted to move monies from an always taxable to a never taxable, does that make sense? When does it make sense? How much should you do and when should you do? It are part of the conversation.
Speaker 1:You know it's interesting because we've been saying this for a while how we're in a historically low tax rate and there were times where the tax rate could get as high as like 90%, or I think it was even higher than that around World War II era, where it didn't even make sense to make any more money because so much of it was going to Uncle Sam. Yes, sir, and you know, our deficit is growing and growing, and growing. And you know, whether you like him or not, I mean we have a president who hasn't been the most effective at managing his debts. I mean, he filed for bankruptcy like what? Two or three times, is it?
Speaker 2:Yeah, it's maybe more.
Speaker 1:Yeah, so he's not exactly the best at paying off his debts. Meanwhile, my cat is distracting me in the background. I'm forced to stay in an Airbnb because there's no electricity in my home. But anyways, as I get my mind off my cat, there's so many economists and maybe we just decide to just continue to take on debt. But there's many people, many smart people, who project that our taxes are going to go up in the future, near future, with the OBVBA. But what are your thoughts on that? Because the idea here is you want to reduce your, you want to defer your taxes in high tax years and then you want to recognize it in the low tax years. All things constant. What do you think when we try to see into the future, what do you think is a probability and based on historic you know how easily can we think about the tax rate going down in the United States and planning for that? That's a little tricky question right there.
Speaker 2:Yeah, no, I think you make a great point and I would agree. I think we have like a once in a lifetime opportunity, the next four years, to really dig into tax planning, because I this is just me personally I would say there's 100% chance that the tax rates go up in the future. I mean, I will be absolutely shocked if they're not higher sometime in the very near future, because they have to pay for the deficit somehow, and especially if the economy ever slows down, you know, and interest rates stay high and you've got, you know, the interest on the debt and I don't know if it'll happen this year, but you know that's going to be the biggest line item, even larger than defense at some point. So going to be the biggest line item, even larger than defense at some point. So you know, you hear the president touting lower interest rates. Well, he's got a vested interest in why he wants that, because it makes a huge difference on the you know 30 plus trillion of debt that we have.
Speaker 1:Yeah, it's a little scary. And now here's some things that we can plan for, even if we don't have a crystal ball. And you see, in the future is, many of you have volatile tax brackets because of things that are within your control and that are not going to be impacted by economic factors as much. So, for instance, let's say, your business allows you, you know, as a result of your business needs or investments, we need to do cost size and completely eliminate your taxes. I always say never let a good tax bracket go to waste. Right? You have those tax deferred accounts. Now's an opportunity to put them into the Roths. And here's something that I think a lot of people are going to miss out on.
Speaker 1:I think so many people are going to let this opportunity slip which is qualified opportunity zone funds which are going to be revived in 2027, where you can put your cap gains into a QOZ qualified opportunity zone.
Speaker 1:There's all these ways where you're going to defer it for five years, which is pretty good when you look at the time value of money and when it's recognized, they know you're recognizing your cap gains and they will do things with the funds, whether it's through a distribution or even a revaluation of assets to drop down the taxes, to make those taxes very affordable. So not only are we mitigating taxes through timing and valuation strategies, but now you can put an unlimited amount into these QOZs, which are almost like Roth IRAs, because the exits are completely tax-free. So here's another way to get money into the tax-free bucket and in any type of cap gain, not just real estate. So that's another way where we can kind of plan for our wealth to be protected, regardless of what happens in the tax rates. I don't think the government will reverse the tax free, the tax treatments of the QOZs because it's a nonpartisan bill. So that's a really cool thing.
Speaker 2:I would agree. I think everybody should look at those opportunities and now it may not be applicable for everybody, but in the next number of years, while they're still around cause they were gonna kind of phase out and now they brought them back I think that could be a very interesting or very profitable scenario for lots of people, at least for some diversification in their portfolio and, obviously, tax benefits.
Speaker 1:Yeah, and you know, like, like we said, the 100% bonus is back and, unlike in the past, there's no phase out, there's no plans to eliminate 100% bonus. But if you look at the history of bonus, it has come in and out in all sorts of different levels, anywhere from 30% to 50%. So it's kind of bounced around, and I wouldn't be surprised if, in the future, we lose our 100% bonus. Now, obviously, our clients are very excited about this, but a lot of people are also very bitter about this in the media, and so I wouldn't be surprised if there is a movement against this where people are getting annoyed that folks are riding off their G-wagons while the middle and lower middle class is unable to take advantage of these opportunities, and not only that. Let's say bonus states. I mean how?
Speaker 1:many assets are you going to buy and do these assets make sense for your business? So, while this is a really nice opportunity for you guys, it doesn't mean that you're going to for all of you, that you're going to be in the zero dollar tax bracket forever.
Speaker 2:Yeah, I totally agree, and I just think you know everybody needs to take a peek at it and you know, have that as part of their arsenal, at least when they're looking at it. And any tax thing that is considered permanent, I would never feel very comfortable with that because, depending on which administration's in and how people are feeling, and debt issues, all these things are subject to change. So you got to take advantage of them when they're in front of you, and we have it in front of us now. So you know, don't miss out.
Speaker 1:Yeah. So I know you've done some interesting capital gains planning strategies and there's a whole world of capital gains planning strategies out there. What are some of the things that you think are pretty cool and you can give us some examples and tell us maybe some redacted client stories of some of the things you're doing, or maybe some of the things you're doing with your own cash?
Speaker 2:Yeah, I'm kind of. You know, I eat my own cooking, I guess, as I mentioned to you earlier. So any of the strategies that we use for our clients I will have used myself first just to make sure that how they're advertised and how they perform are one in the same. But we've had a lot of.
Speaker 2:We work a lot with business owners and entrepreneurs also, with business owners and entrepreneurs also, and this year has been one of those crazy years where we've had a lot of businesses selling and then we've had quite a few clients have real estate sales, mainly of, like second homes, luxury real estate on the beach kind of a thing and then they wanted to move because they didn't want to be in the hurricane zone anymore or things like that.
Speaker 2:And so obviously, when those things sell and they've had great appreciation, capital gains are generated and there are some really interesting strategies out there where you can use long and short strategies against whether it's equity portfolios or actually you can have no risk and use like a treasury portfolio to be the base for which to use these techniques and they can generate a substantial capital loss to offset capital gains and depending on the timing of when you do it and how many months you have in the year. They generate capital losses literally for maybe up to 10 years, and so if you have a lot of things in your portfolio that might be coming due or sales or whatnot, this can provide not only a current tax benefit but also allow you a lot of flexibility to sell things because of it continuing to generate capital losses.
Speaker 2:It does go down a little bit every year depending on how you structure it. It does go down a little bit every year depending on how you structure it, but really interesting when you start doing some deep dive tax analysis on how much you can minimize the tax hit from something like that.
Speaker 1:So we have capital gains of any kind, right, and we can deploy this into vehicles that will give us I think they're ordinary losses that will even offset your W-2 income and business income right? So you take a capital gain event that's taxable and you turn it into actually a tax deduction that reduces your taxes in multiple years. How awesome is that? Right? And I believe you're using leverage and other people's money to make this work. Right, and leverage is very powerful, just like with real estate. So most of you think or you know, the common belief is yes, real estate is so powerful. One of the benefits of real estate over stocks is you're using other people's money to grow your wealth using the bank's money, and also to gain assets, give you depreciation, but the same can. The same can be possible with advanced asset planning and stock investing, which is really neat.
Speaker 1:A lot of you guys listening probably never knew that was possible. What's the profitability and the cash flow looking from this as well?
Speaker 2:Um, a lot of it depends on what you're using for underlying assets. So you know, we in a lot of cases we'll keep it fairly simple, where we'll use as the base either existing assets, so it doesn't require new assets, and we just do not sell the assets. So, whatever the risk level of your portfolio is, you keep it exactly the same. And then, as you mentioned, there's leverage, used to do long and short transactions, which create, you know, long term, you know gains and losses and they offset one another and you know, as you mentioned also, you can even get it where they can offset ordinary income even, which is some newer concepts, but the rate of return typically historically and there's no guarantees with this, obviously have been running maybe 3% or so over and above the underlying asset that you have. So you pick up the rate of return on the portfolio and then you get the tax benefits and then, with the leverage, you pick up a couple of extra 2%. 3% is what we've seen.
Speaker 1:Nice. So let's talk about how these numbers play out here. Let's say I have a $1 million cap gain on the sale of some stock. Let's say that I bought the stock for a million. I'm selling it for $2 million. What would it look like if we did that in one type of tax? Now, also on a side note, there are many ways to do cap gains playing, so this may not be the solution for you if you were in this scenario, because there's so many other things to consider. But let's say we have a million stock to sell for $2 million, how would this kind of play out?
Speaker 2:Yeah, and there's various versions, and the larger your capital gains, there's versions that generate larger losses, generate larger losses. So in the example that you gave you could create. If you just took, for example, if you took the million dollar, investment grew to two million, you got two million dollars, a million of which is taxable. If you took the $2 million and you'd use the strategy that I just said, over a 12-month period of time it would generate about $640,000 of capital losses. So if you were fortunate enough to do it on January 1st, the million dollar gain would turn into a taxable gain of only 360,000. So you'd cut the taxes two thirds Nice.
Speaker 1:And then, beyond that point, in the following years, you still get ordinary losses and you still get cash flow.
Speaker 2:Into the following year. So if you've got other investments or other things that will generate future capital gains, it'll continue to generate. So over a 10-year period it'll generate about 1.4 times the investment in tax losses in addition to whatever the investment earned tax losses in addition to whatever the investment earned.
Speaker 2:And then there's a version where, if you have a larger gain and can put and there's actually a couple of different versions, but if you had $3 million or more, you can actually get twice as fast of write-offs. It just requires a larger asset base because it generates additional leverage.
Speaker 1:Very cool.
Speaker 1:So you know there are things out there.
Speaker 1:For those of you listening, there are some very sophisticated tools out there, and if you are thinking that you can DIY your own tax planning and if you think you can figure this concept out on your own by going through Reddit and Google or Facebook forums, you are probably wrong, because there are some very sophisticated vehicles out there that you're just not going to have access to if you're not working with a group of advisors who specialize in tax planning and tax strategies, who eat, sleep and breathe this, and not only that.
Speaker 1:I mean, when we do this, we have to do a ton of due diligence, and I'll tell you there are a lot of snake oil salesmen out there who can put you at risk, not just of losing your money, but compliance risks, and when you work with someone like Brian or myself and you have a good group of qualified people, they're going to share with you these concepts that are very sophisticated and very resourceful, but they're also going to protect you from some of these strategies where the promoters wind up in jail, and not too long ago you may have heard about there was this ATM investment strategy that turned out to be a big Ponzi scheme and everybody lost their money right. Or the Malta strategy and all these other things where people wind up in jail and the investors lose their money. So it's really important, first off, to know that there's some really amazing strategies out there, but also work with the right people.
Speaker 2:Yeah, I couldn't agree more. You have to be really careful. And the old adage if it looks too good to be true, it probably is. But you know, that's why I kind of eat my own cooking. So the things that I recommend for my clients, I personally own. And not that they all work out, but at least the people we work with understand that. You know, they got to have a little confidence because that I've done it and I will actually show them my portfolio and those particular items so that they can actually see, you know, see what I've been doing and the results that I've gotten. So that's just kind of me personally and how I feel about it, about it. But yeah, you just really really want to be careful and you really do want to work with qualified people because you can make probably so much more money saving taxes than you might be able to make in rates of return.
Speaker 2:And I just had a really quick example here and I had a client retire. They had like a $3 million IRA and $150,000 Roth and then they had other assets and we just did a. All they asked me to do is would Roth conversions be helpful? I ran just two scenarios. If they just did nothing and they were 65 and they wanted to live till you know. They said their life expectancy would be age 100. So 35 years. They were comfortable with a 7% rate of return and 2% inflation.
Speaker 2:Well, just doing Roth conversions, or a portion of their IRAs into Roth conversions, we cut their taxes from four and a half million to two and a half million, literally cutting their taxes in half. And that's all we did for them. That's all they wanted to look at was just Roth conversions. And then, if you and I are right that the tax rates are going to go up in the future, that even makes that even more valuable, because the Roth has got no tax down the road. So you know, getting a qualified person to do a deep dive is so critical. So that's why I appreciate all the work you do, because most people miss out on such great opportunities that so much outweigh, you know, getting an extra one or two percent on their investments.
Speaker 1:Yeah, you know I've been. You know I did. You know I constantly researched the tax law and go to events and trainings and it was interesting. You know you have all these buckets. You got your retirement accounts. We take the money out of them. They're taxed at your ordinary rate, but then your cap, your stocks, are taxed, assuming this tax for stocks are taxed at 015 to 23.8%. So you have all this mix of stuff and what I've found from at least my education, is that the most advantageous way all things constant would be a mix of strategies going on at the same time. So maybe not doing more sense to do the Roth conversions that year. So there's so many moving pieces. It's such a complex science and art when you're looking at all these different moving pieces, when you're planning and building your wealth and your portfolios.
Speaker 2:Yeah, you cannot just assume that I will do this each and every year, because circumstances change, your income changes, the tax laws change, everything's different. But you want to be on top of it and take advantage of each year. But also have a big vision that, if your vision is to pay the least amount of taxes over your lifetime, be conscious of what you do in any one year. And what if I did this? What effect does it have down the road? So if you're just stop there and say I'm not, I'm going to pay very little taxes, well, what consequences could that have? Excuse me down the road by doing that. And if you're not aware of that, you should be aware of that Absolutely.
Speaker 1:What I want to know from you is what are some investments or tax savings or just some general financial ideas that get you most excited and that you're really enthusiastic about?
Speaker 2:Well, recently, it's the scapital gain scenario we just chatted about, and I think it's just because I've got so many people, you know, utilizing it or having transactions.
Speaker 2:But you know we really do take a very diversified approach to our planning, approach to our planning, and you know we don't, you know, think one thing's always better than another. It's kind of what is the people's timeframe, what are their goals, what are their dreams, what are their timeframes and expectations? And then try to, you know, build a customized portfolio that accomplishes what's important to them. And then, you know, build a customized portfolio that accomplishes what's important to them. And then you know, obviously, build the tax framework around it. And you know any estate planning issues also is important, especially, you know, if you've been very successful or had a liquidity event and you know, all of a sudden you sold your business for $50 million. Estate tax is now an issue that you made to make sure you're addressing. And if you're in a state like mine, which is Minnesota, the state income tax is one of the five highest, plus, the estate tax in Minnesota isn't the federal rate and so we only get a $3 million exemption. So you know that adds to the complexity.
Speaker 1:Oh, I bet yeah. So you know, we talked a lot speaking of complexity. We talked about a lot of complex things and, to some of our listeners, you know this is something where you can't do this alone. Obviously you need a team, um, you know this is something where you can't do this alone. Obviously you need a team, um, and what I want to know from you is, to those listening, what are some key takeaways you'd like to share with the audience? And also, do you have a main resource or a call to action you would like to share with the audience?
Speaker 2:Yeah Well, I think the big thing is, if you aren't being proactive in your tax planning, please start, look at what the potential is and what the options are and learn about it. Not that you have to do any of it, but being educated and armed with this knowledge, you may be kind of amazed at what the opportunities are, but it's not everybody that knows how to do these things or how to coordinate these things. How to do these things or how to coordinate these things, and so that would be my call to action is, if you haven't done any of that planning or worked with anybody that is very knowledgeable, you know, spend some time learning about it and how does it potentially affect your situation in a positive way.
Speaker 1:So Absolutely so. If people wanted to further discuss this with you, where could they go to learn more?
Speaker 2:Yeah, well, there's two ways. If you have a question, you can contact me. Just send me an email. I would more than happy to answer a question. It's Brian B-R-Y-A-N at Sweet Financial. One wordcom, sweet like candy and otherwise a website is just sweet financialcom and you'll learn a little bit more about the firm and some of our team members and things like that. And we we used a trademark process for our wealth planning called the dream architect. We used a trademark process for our wealth planning called the Dream Architect. So we're all about helping you live your dreams and realizing all of life's possibilities.
Speaker 1:Very cool and obviously those dreams should go a lot more attainable when you're on top of your money and your tax planning. All right, well, I really appreciate your insight and, for those of you listening, if you want to learn more from us, go to prosperalcpacom. That's prosper with an L. Cpacom slash apply prosperalcpacom slash apply to learn more about how we may be able to help you as well, and maybe we can me and Brian together can put our heads together and help you save millions of dollars in taxes and build your fortune and reach your dreams. Well, thanks for listening. We got more great content and lots of great stuff on the obvba. By the way, we didn't get a chance to really dive into that. We got more stuff coming, so like and subscribe and happy tax savings.