Life Beyond the Briefs
At Life Beyond the Briefs we help lawyers like you become less busy, make more money, and spend more time doing what they want instead of what they have to. Brian brings you guests from all walks of life are living a life of their own design and are ready to share actionable tips for how you can begin to live your own dream life.
Life Beyond the Briefs
7 Tax Moves Every Law Firm Owner Must Make Before December 31st (Live at GLM) | Adam and Jackie Williams
Dreading your next tax bill… but too busy running your firm to do anything about it?
In this special Breakout session live from the Great Legal Marketing (GLM) Summit, Adam and Jackie Williams of Pennywise Tax Strategies walk us through 7 smart tax moves every law firm owner should make before December 31st if you want to keep more and pay less.
You’ll hear how firm owners are legally:
- Using the tax code to put more cash back in their pocket
- Structuring their firm (and life) so they’re not tipping the IRS
- Leveraging strategies like renting their home, paying their kids, and big-ticket deductions the right way
- Moving from “reactive CPA” to proactive tax planning that actually supports their goals
This isn’t theory. It’s what Adam and Jackie are doing every day with lawyers who are tired of grinding more hours just to watch the IRS eat the upside.
Listen in, then grab the notes:
Want the session notes and key takeaways from GLM (plus other Summit sessions)? Download them here: https://www.glmsummitnotes.com/
When you see how much value you get just from the notes, you’ll understand why lawyers fly in every year for the GLM Summit to learn how to build a profitable firm and a life they actually enjoy.
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Brian Glass is a nationally recognized personal injury lawyer in Fairfax, Virginia. He is passionate about living a life of his own design and looking for answers to solutions outside of the legal field. This podcast is his effort to share that passion with others.
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Hello, my friends. Welcome back to Life Beyond the Briefs, the number one podcast for lawyers choosing to live lives of their own design and build the kind of practices that they actually like showing up to on Monday. This episode is going to get released on December and and there's two things that lawyers start to think about in December. Number one is what they're going to do next year. So we start to do some annual planning, and I'll have an episode coming up in the next few weeks about how to prepare for your annual planning and the things you need to do in December to make sure that you are ready to go when January 1st or January 2nd, if your big New Year's Eve partier hits. And the second thing the lawyers and law firm owners start thinking about in December is holy shit, my tax bill is going to be outrageous. And if you haven't done any kind of tax planning before, the strategies that you're going to hear in today's episode from Adam and Jackie Williams of Pennywise Tax Strategies are going to shock you because your CPA hasn't told you any of these things. If you've never heard about the Augusta rule or bonus depreciation or renting your home office to yourself, if you've never experimented with any of that, two things will surprise you. Number one, how many rules there are that you know nothing about? And number two, just how easy some of these things are to implement and save yourself thousands or tens of thousands of dollars off of your tax bill. And so if you've been, as we did for many, many years, sitting around waiting for your CPAs to tell you how to reduce your tax bill, you can hold your breath until you turn blue. And you need to be talking with a tax strategist like Adam or Jackie and figuring out what are the ways you can keep more of your hard-earned dollars in your pocket and in your family's pocket and less of it with the government. If you blow through this episode and you like the strategies and you want to hear more and get a deep dive into the strategies, I want you to go to GLM SummitNotes.com and download absolutely for free 122 pages of the notes from this year's Great Legal Marketing Summit. That's GLM SummitNotes.com. It's 122 pages. There's notes from all of the sessions, including slides from all of the speakers at our Great Legal Marketing Summit. It would be a great way, if you've never been introduced to any of uh Great Legal Marketing's teachings, for you to get you know a deep dive into a broad swath of areas, and there's an opportunity after you download those notes to purchase access to all of the sessions from the summit. GLM summitnotes.com. Adam and Jackie were kind enough to come to DC in October and speak for us, and you're gonna find basically everything you need to build a perfect law firm for you within that packet. So without further ado, because the clock is ticking to December 31st, which is a deadline to make changes and save money on your 2025 tax plan, Adam and Jackie Williams.
SPEAKER_04:All right, let's do this. Leah's presentation was awesome. I have not heard her speak, but I have seen her on LinkedIn, and that was really good. What impressed me most about it is how much you guys nerded out about it. Like that gives me some hope. Like there were some really good questions. Uh, and I actually think that doing these two talks in sequence is really good because we are gonna build off of everything that she just told you. So Jackie and I got to town a couple days ago, and we actually worked on our budget for our firm. And uh we decided to stay downtown. We were in Georgetown, and we went for a little walk through Washington, DC.
SPEAKER_01:And we went to the Lincoln Memorial. You guys all familiar with the Lincoln Memorial?
SPEAKER_04:It's a big box with a statue in it. Yet somehow, our government is finding a way to spend$200 million renovating it. Then we walked by the White House, and I'm sure you've seen the renovating part of that building.$300 million. And somewhere in here there's a Trump supporter who's like, who's his don donors are paying for that? Whatever, it's$300 million, right? So then we walk by a bus stop and there's a sign that says the United States is$37 trillion in debt. In fact, 19% of every dollar that our country spends goes towards interest. Paying down, not even paying down, just paying the interest on the debt that we incur as a country.
SPEAKER_01:Where do they get all this money? You guys! So I think we're gonna stop that today. Is anybody traumatized by that?
SPEAKER_04:Well, listen, assholes, that's what you're doing every fucking April, okay? All right, Jackie said you take the clip on Mike because you get more animated. So here we are. So you guys know to get a single fee from a client. You have six marketing vendors telling you you just need to give these campaigns more time. 37 potential clients have completely unreasonable demands. They're ready to leave you a one-star review just because you don't practice in their practice area. You have a steel cage match to get the retainer from that client and all kinds of anxiety about whether your engagement agreement actually complies with the bar rules. You get 435 emails every single week that say, any updates? When you know there are no fucking updates, you have 14 software subscriptions, two of which you actually use to their full potential. I'm glad Leah's clients have that same problem. Your associates bill 0.3 hours per day somehow. You put in 10 hours of horrible CLE courses, and then you get nine reminders to complete and review and send your bills to get a single fee, and then Uncle Sam comes in for his share. I can't help you with your marketing. In fact, I'm so glad that so many of you are in here because you realize there's more to running a profitable business than just generating more leads. I can't help you with your hiring, your software, the CLE, your emails, your underperforming employees, your Google reviews, your mindset, or the rule against perpetuities. I don't know any of that stuff.
SPEAKER_01:But in the next 45 minutes, we're gonna show you how you can keep more of what you already make without completely disrupting your life. My turn.
SPEAKER_00:So what is tax strategy, right? We just set through um a great 45 minutes on how to plan for our business, plan um your budget. Well, tax strategy is that for your life and for your business with regards to your taxes. It's looking forward. It's saying these are the things, these are the goals that I want to accomplish this year personally and professionally. And how do we do it in the most tax efficient way? Or what are other things that we can do that we weren't planning on doing in order to get to a lower tax bill that still works within our goals. So today, what we'll cover seven specific strategies that we think you could do by the end of the year. Um some of those are part of the OBBA, I think is the acronym. Yes. And then we also have a few free resources for you today.
SPEAKER_04:Well, this is me, huh? So we, I don't know if you guys saw. If any of you follow me on us on social media, we just got famous because yesterday Brad Lee released a podcast that we were on, and he has 1.4 million Instagram followers. So we just became really popular. Uh, but we recorded this podcast back in July and we renewed our vows in front of Veg uh Elvis, which was freaking awesome. Um, so I'm a lawyer, uh, I have an MBA, I have a business management degree, I've taken intro to accounting three times, and then I married a CPA. Uh Jackie is also a certified tax planner through the American Institute of Certified Tax Planners, which is cool. Uh and both of us started our careers in big four accounting. We both both worked at KPMG. She was an auditor, I worked in state and local tax. And what I was doing in my job back then was helping mega corporations save tens and hundreds of millions of dollars on their taxes every single year. And they were completely ungrateful and it didn't mean anything to them. And the next year they were going to send out another RFP to the rest of the big four to see who wanted to do the work next year. So it was cool because like it was big dollar stuff, but the impact I was having was pretty insignificant on a personal level. So I started my own law firm after I clerked for a judge for a little bit. Uh, and eventually Jackie quit her job. She was then working at a big fancy bank, helping them with their accounting. She joined our firm in 2019 and we kind of blew up. Uh, we made the law firm 500 list a bunch of years, we made the Inc. 5000 list. Um, and part of that process, part of that growth came from working with clients to get tax credits that were available and other benefits that were available through the pandemic. So helped our clients get about$80 million. And we became victims of what I have come to call April shock syndrome. I'm the only one who laughs at that acronym. It's it's gonna catch on. And you know how it goes. You sit down with your accountant in March or April, you hand them a box of receipts, they fill out your taxes, and they say, you owe, pick your number,$37,000,$100,000,$300,000. Congratulations. This is what it means to be successful. And after going through this year after year after year and working with hundreds of clients, including a whole bunch of law firms, we realized that we aren't the only ones that have this problem. A lot of people are undiagnosed with April Shock Syndrome. So we decided to take what we learned working at the Big Four firm, where these big companies are being proactive and forward looking to reduce their taxes and saying, gosh, there's actually similar opportunities out there for small businesses. And it's much more fulfilling for us because you get to look us in the eye and say, you just saved me$370,000. I want to name my children after you, which is a lot more fun than working for waste management and saving them$75 million. And they say, it's like it doesn't even show up on their financial statements. It's such a small amount.
SPEAKER_00:I think you covered most of that's yeah. Next.
SPEAKER_04:Our goal right now, though, uh, is we do want to help our clients save$100 million on their taxes. That's our next big, hairy, audacious goal. We run on EOS just like uh uh Ben was talking about yesterday. And that's important to us because we live in Erie, Pennsylvania. My law firm was founded to help small businesses and entrepreneurs. If you're not familiar with the entrepreneurial ecosystem of Erie, Pennsylvania, it's nonexistent. Uh but our city budget is$100 million. So we're on a mission to help put that same amount of money back in the pockets and then in the hands of entrepreneurs so that they can do cool shit with it.
SPEAKER_00:Like this. So this is us on our 30-day RV trip that we took this summer, um, still working, uh, but as entrepreneurs with tax strategy able to write off some of the trip. So um, I guess that's an example of how we can help you do the things that you want and keep more money in your pocket.
SPEAKER_04:And we get it. Like we're a family business. We run a law firm. We understand a lot of the problems that you guys deal with. I love that Leah has experience working as a paralegal and working in law firms because you kind of realize she gets it more than most other accountants are gonna get it, right? Um, I have a slide in here. I was really hoping Dan Kennedy was gonna be here and I can have a slide with Barack Obama on it just to see if that would trigger him, but he's not here. But your boy, Barack, says we have a tax code that's rigged and it favors the people with the accountants or lawyers who actually work this system to their benefit. And those are the people that end up paying no tax. But he's talking about big corporations taking advantage of this. But what we're gonna show you today is the there are possibilities here for you guys as well. All right, so let's talk about running a law firm, right? I showed you the trauma of that first slide up there, but you ever have one of those weeks where like Friday hits, you're done. You're not gonna cook dinner. You don't even want to DoorDash because throwing out the garbage from DoorDash would even be too much work. So you like, let's just go out to eat, right? So we have an eight-year-old daughter.
SPEAKER_01:She is adorable.
SPEAKER_04:She knows how adorable she is, which makes her super manipulative. So she tells us we're going out to the Chinese buffet. Like it's one of those Fridays, like, let's just let's just go out to eat, right? So she decides that we're gonna go to the super buffet in Erie, Pennsylvania. We've lived in Erie most of our lives. We've never been to the super buffet. Fine, let's go check it out. So we pull up to this place. It's like 20-foot-tall doors, and they both open at the same time as you as you go in. And this place is basically the size of a Walmart, right? Table for four. All right, follow me, I'll take you to your table. So we get our 10,000 steps in, going over, get a tour of the buffet, right? They got a preview the whole thing. And we're like, this is pretty impressive. And then they open another set of doors, and it's like the Mongolian barbecue and the sushi bar and the ice cream machine and all the other things that make a Chinese buffet so great. So we get to our table. This is me, right? Uh there's no modesty with Adam Williams when it comes to a buffet, or frankly, many other circumstances. So I pile the plate nine inches high, right? Jackie, meanwhile, is Holly Go lightly skipping through the buffet, like just sort of grazing, taking seven or eight trips, little things here or there. So I get through half my plate. This is AI driven, by the way. I didn't, that's not an actual photograph. Um, I get through like half of my plate, and she's like, I'm going up for ice cream. Do you want anything? And I'm like, Yeah, I need a wheelchair and call the valet to bring our car up because I can't move. There's no valet at the super buffet. I tell you that story for three reasons. First, the tax code is an all-you-can-eat buffet for business owners. It's designed to generate revenue for the government, of course, but it's also designed to create incentives and disincentives for things that they want you to do. But we don't need to get sloppy with it. We can pick and choose what we actually want. Second, I tell you this because the buffet is about to close for the year. How many days are left? 68? 68 days until December 31st. We're going to show you some things that you still have a chance to do this year. We're going to talk about opportunities that you've missed, and we're going to say how there's some other things that you could have done more of that now we have to scale down because there are only 68 days left in the year. Uh, and then the third thing is to show you that some of the decisions that you make early on in this process will open up additional rooms to additional buffets.
SPEAKER_01:So, room number one.
SPEAKER_00:So, choosing the right entity is the first thing that you want to make sure you do. A lot of you um probably maybe have been told you need to be an S-corp. It depends. An S-Corp is a great strategy, and that's what we're illustrating on this slide here. And um, for those of you math nerds in the room, these numbers aren't 100% right, but I'll get to what um the the how you can get to that savings on the next slide. So if you are just being taxed as a Schedule C, that means you have one tax return at the end of the year, all of your profit goes to your Form 1040, you're looking at total tax of about$46,000 with an AGI of$250,000. Now, if you elected an S-corp strategy, that will separate your pay between your wages, as Leah was talking about before, and your profit. You won't get taxed with self-employment tax on your profit. And if we come up with a reasonable wage, as Leah mentioned before, we could potentially get to$80,000 in W-2 wages and a profit of$170,000, which is going to reduce your tax bill by the amount of self-employment tax. So that is one very significant strategy that if you're not already doing it, you should consider. Now, if we go to the next slide, I will say that that's not meant for everybody. If you are someone that is keeping all the cash in your firm, you might want to consider being a C Corp because some of the things that are available to you as a law firm, um like the qualified business uh income deduction, you phase out of at a certain amount of income. So in that case, a different entity might work for you. So what we recommend here is that you evaluate your entity on an annual basis and not right before tax time. It should be at the beginning of the year. Now, if you do that S-corp strategy, there's a few different other things that become available to you. If you're not just a solo entrepreneur, you can do things like an accountable plan. So you can get reimbursements for things that you're maybe not already expensing. You can apply the Augusta rule, which we'll get into further. Um, there's different retirement accounts that are available throughout the different entity structures that you'll unlock. But the one of the biggest things is if you are in a high tax state, you can also now elect to pass through entity tax, which is great because you get to deduct it from your federal taxes and not be limited to any of the state rules.
SPEAKER_04:So most of these things we have additional slides.
SPEAKER_00:Right, exactly. So more to come.
SPEAKER_04:All right, so let's get into the next level of strata. Like once we got your entity picked out, right? And uh it like is everybody in here some sort of LLC S corporation? Is anybody a sole proprietor?
SPEAKER_01:I'm gonna make you come up here and shred some of this. Okay, good. So we got a plan. I like that. Good. Retirement to get down to plan.
SPEAKER_04:Yeah, maybe. Holy crap. Can we get through the easy stuff first? Here's another example. If you're if you're like that focused on being close to retirement and getting all the benefits out of it, maybe you should consider being a C corporation because maybe private equity is gonna come in and buy you out. And maybe what's the new thing, QSBS? If you're selling in the next three to five years?
SPEAKER_00:Not for not for attorneys.
SPEAKER_04:Okay, see, good. That's why I bring here. All right, so let's get into the let's get into the fund strategies, the ones that I actually understand. Um, two ways to use your home for tax savings, right? So a few months ago, I was giving a very similar presentation to this in Savannah. Actually, I did one in Tucson and then I was doing one in Savannah, and I had to travel across the country, and my flight was delayed, and I was panicked. So I called a broker and I'm like, hey, what's it gonna take to charter a plane from Tucson to Savannah? And the guy's like, ha ha ha, bro, it's the masters this weekend. Every plane we have is in Augusta, Georgia, right? So, and this is actually part of the flight map. I really get into tracking, that's I just thought it was really wild. So I ended up making it to the uh to the event just outside of Augusta in Savannah. But there's a really fun rule out there that if you follow tax nerds, uh, or even people that are bad at taxes, but they think they know what they're talking about. If you follow these folks on social media, you may have heard of the Augusta rule. So here's the idea. Years and years and years ago, people would rent out their homes for the Masters Golf Tournament in Augusta. And it's big money. All the private jets are there, right? So they can rent this place out for a week or two weeks. People come in, they pay a whole bunch of money for it. Well, that's income to them. So the government says, where's our piece? And these folks said, but we do things like we we spend money to fix it up and stage it and market it and make it available for rental. We want to be able to take the deductions against that income. And the government said, Well, no, that's not a real business. You can't take deductions, but you got to report the income, right? So they actually did something right and did something good for once. They created this rule. And I I talked to two people yesterday who said, My accountant said I can't do the Augusta rule. It's written into the freaking code. And here's what they said: you can rent a dwelling that you own or control for up to 14 days per year and not pay income tax on it. So every single person who rents their home out for the masters at thousands of dollars a day gets all that income and doesn't have to report it on their taxes. Cool. How many of you live in Augusta?
SPEAKER_01:Dang it. So how do the rest of us take advantage of this? Uh, let me skip out of out of worry. Well, let's talk about this.
SPEAKER_04:If you have the proper type of entity, like Jackie was talking about with your S corporation, you don't have to rent this out to strangers who are going to go through your drawers and closets and drool on your pillows. You can rent your home to your business. And your business can take a rent deduction, an expense to reduce your taxes. And you can get that income as the owner of the business and not pay tax on it. Here's the thing: you guys are already taking this money out of your business. This doesn't cost you anything extra. But you can use your home for client appreciation events, the firm holiday party, shooting marketing content, doing your strategic planning meetings. We have a lot of finance meetings at our house, doing staff retreats, doing team building. So now our home can serve as a venue for these various events. And if you've ever rented, like a room like this for an event is crazy money. So you look at comparables and what they cost, and you could theoretically up to 14 days a year rent this out. I put eight days on here because we've only got a couple months left in the year, but at 1,500 bucks a day, you can save$3,600 if you do this between now and the end of the year for your holiday party, your strategic planning, your retreats, your things like that.
SPEAKER_01:Somebody had a hand up. Yep. Only if your accountant sucks.
SPEAKER_00:So we're gonna get into the home office next, but ideally it's a space that's not your home office, right? So if you're thinking about, you know, if we're using our house as an example, we both have home offices, but when we have team meetings, we are using the living space, we're using the basement area for the conference room. So you're gonna look at renting that piece separately or subtracting out the value of your home office of even from yeah. Um I would just exclude it from the the use of that. Like if you for example, if you have a um a clause, yeah, like yeah, you like lock the door, it's not gonna be used. You know, it's a private area that's not right, yeah. Yeah, the rest. Yep.
SPEAKER_04:Okay, so the rule is 14 days or fewer per year. Uh a dwelling that you own or control or that you possess, right? So even if you rent from a landlord, you can still rent to your business and get the benefit from this. Can be your home, can be your vacation home, could be your RV. If you've got a boat that has sleeping quarters and a bathroom, that can count as well. So we can get really crazy and really aggressive with this thing, but it requires planning, right? We have to do this in advance. We can't go backwards for the last 10 months of this year and figure, well, we did some meetings at our house, so let's go create the invoices in the paper trail. The IRS doesn't let you do that. It's got to be contemporaneous. And here's what we just did: we just found an additional expense for your business. And when the IRS comes in and audits you, what's the number one reason that they disallow your expenses? You don't have proper documentation. So we create an invoice, we do research on what a reasonable rate is, we write the check from the business to ourselves, we've now got all of that documentation.
SPEAKER_00:I also like to show the business use through like agendas, um, invitations for the parties, et cetera, and have that all in your in your file as well.
SPEAKER_01:Yes. For two properties. Do you have any empirical data on the odds?
SPEAKER_04:I love this question because some shitty accountant told you this raises a red flag. How does this show up on your business tax return? Is your rent expense exorbitant? If your rent is 50% of your revenue, the IRS may look and say, wow, that's kind of weird. But if we're running a million-dollar business and we just ran another$10,000 or$15,000 of rent expense through it, first of all, the IRS isn't going to know. Now, I'm not telling you to hide it from the IRS. We have some clients who get really aggressive with this and we will actually proactively report it and issue a 1099 and report the income on your personal taxes, but then it gets excluded from the taxable income. So there's two ways about it. But anybody who says it raises a red flag has no fucking clue how audits work at the IRS. I swear a lot because this shit fires me up because we work so goddamn hard to grow these businesses and provide for our families. And then some shitty accountant who doesn't give a shit about you or your family or your kids gives you bad advice.
SPEAKER_01:It drives me fucking crazy.
SPEAKER_04:That's why I started a whole business around it. He does because the P in CPA stands for public. His obligation is to the public. Can you imagine as a lawyer with a client sitting at your desk saying, my duty's not to you? It's to others.
SPEAKER_01:Yeah.
SPEAKER_04:Like, we can't even fathom that.
SPEAKER_01:That's literally the oath that they take. My aura ring is gonna be like, that was a great workout. Can we where is this where is this house? Okay, let's do a mastermind there.
SPEAKER_04:Okay.
SPEAKER_02:Okay. Do you want that? Oh my god.
SPEAKER_04:Without looking at your taxes and your situation, how much money you make, I'm not gonna tell you what you should do. I'm gonna tell you there's risks to not reporting it, and there's risks to reporting it, and you decide which one you want to take.
SPEAKER_00:Right. Yeah, because yeah.
SPEAKER_04:And again, you gotta be the right type of entity to do this. If you're a sole proprietor, you can't make it happen. All right. Are you doing home office?
SPEAKER_00:I am.
SPEAKER_04:Thank God. Why are your slides all delay? Why did I do that? Okay, there we go. It's all you.
SPEAKER_00:Okay. So um it sounds like we don't have a lot of for the we're back to like PG rated. So can I go? Yeah. Okay. Thank you for the introduction. All right. Um, so it doesn't sound like we have a lot of sole proprietors in here. Um, but when you were a sole proprietor, your home office was on your tax return. And it was something that you could do after the the year ended because it was just a calculation. It was just like, hey, this is bonus, this is great, this is a deduction. Um, once you're an S-corp, you're a partnership, um, the home office deduction deduction does not go away. It just becomes a reimbursement and it has to be done before the end of the year. So um this is and some of those CPAs that are not as creative will tell you, no, you can't do it. If you have another office, um, if it's not your principal place of business, you can't have a home office. And that's simply not true. You just need to have a reason for that office, an exclusive reason, and you need to use it and have documentation to show the use of it. So um, this also is another way that you can reimburse employees or give them more compensation without increasing their taxation or any additional tax that you pay on them. You could reimburse them if you have remote employees for having a home office. So, this is something, another way to get creative. So also with the home office, if you have a vehicle, and we're gonna talk about vehicles later, that you want to deduct, um, you want to get that bonus depreciation. If you have a home office, every mile from your home to your other office is counted as business mileage. So it is great, um, is a great reason to have this just to open up other opportunities. Um, there are a couple of different ways you can do the home office calculation for your accountable plan. Um, when you were doing the simple one, when you were just sole props, you were probably just doing$5 times square foot. Um when it comes to your home office, if you have a very large home office, it's actually a percentage of the use of the space that you're using, of your total like mortgage interest, your um property taxes, some of these big expenses we already have. It'll help eat into that. So um that's the gist of home office. Um this is what I kind of covered earlier.
SPEAKER_04:I skipped two there. Um I think what's so so we're creating a percentage, right? And writing off a percentage of expenses. So Jackie mentioned mortgage interest, taxes, insurance, but it's also repairs, maintenance, upkeep, domestic services. Like we can get a lot of stuff included in this deduction.
SPEAKER_01:Oh, there's a list right there.
SPEAKER_00:Yes. So Right. So you use an accountable plan. And believe it or not, the guidance, the rules, I say guidance because I'm an accountant. The the tax code does not require you to actually document your accountable plan, which is utter BS, because what do you show to support it? Um we need to have evidence, right? Um, but we so we recommend you document your accountable plan. And when an accountable plan is, it is a plan that directs how you reimburse yourself and employees for business expenses effectively. Okay. So what you're going to want to do is basically have a policy on what you reimburse for and make sure that you are on a regular basis doing that reimbursement. Now, for some people, that might be every paycheck. Maybe you do it through your payroll. Um, for others, it might be monthly, it might be annually, it might be quarterly, but do one and stick with it. And that basically will help you reduce maybe your draw number and increase your expense number, um, which will save you on your taxes, but still keep gets you the same amount of cash in your personal bank account to pay your bills. Um so what we recommend is, you know, making sure that we're very clear on the business connection and purpose. So it's documented, like I said, and that, you know, all of the expenses are reported in a reasonable amount of time. So that's what I said quarterly, monthly, payroll cycle, uh, you decide. And then if for whatever reason you have an excess of reimbursement, let's say because the people who do it ahead of time, um, maybe you are estimating your December utility bill. Okay. Um let's estimate it, and then if we have to fix it, we you know change the next month's reimbursement or something. But that's kind of where um if this is something you need to do before, please do it in December.
SPEAKER_01:Or before, but by December. All right. Another uh Yeah, look at it.
SPEAKER_04:Look at ChatGPT did a pretty good job with this, Jack. That's impressive. My face, not so much, but the rest of it works. Okay, so another strategy that we hear a lot, uh, especially with social media and influencers, is put your kids on payroll. And as lawyers, where words matter, I don't like to call this strategy that. I like to call this strategy putting your kids to work. And basically what we can do is take income that is at your tax bracket, which is likely pretty high, 25, 30, 37%, and we put it in a 0% tax bracket. Would everybody like to find a way to do this? Please say yes. Okay. So here's the idea. The wrong way to do this is just to put your kids on payroll. The right way is you actually create a job for them. So they have a job description and they track their hours and you put them on payroll, just like you would a regular employee. But here's here's the I don't want to call it a benchmark, but an idea of what some people try to accomplish with this. There's this concept under the tax code called the standard deduction. And basically, some people can go out and itemize deductions on their personal expenses if they give a lot to charity. They have a lot of medical bills or a lot of unreimbursed expenses. But something like 89% of Americans take what's called the standard deduction. And it says, whatever your income is for this year, you can subtract out$15,750 and you don't pay tax on that. Well, if your income is$15,000 and you can take a standard deduction of$15,750, you don't pay income tax on that$15,000. Is everybody following this? So the idea is you could pay your kids up to$15,750 at a 0% tax rate. What I'm not telling you to do is go out and put every single one of your kids on payroll at$15,750. I want to make that abundantly clear. That's the crappy advice that's out there on the internet. But the good advice is give them a job. Let them earn some money. We have two kids. Only one of our kids actually is on payroll and has a job in the business. You can also supercharge this by contributing to an IRA for them. So tax-deferred retirement.
SPEAKER_00:It's not even tax-deferred. It's if you do a Roth IRA, it can be completely tax-free earnings. They could be a millionaire.
SPEAKER_04:Yeah. So you get a 15-year-old kid that you do this for five or six years and then it grows uh and gets invested over time. You got some pretty wealthy kids when they grow up. So we're talking about taking the 15,750 plus 7,000. So you have older kids that are doing a more valuable job that can earn a little bit more money. Maybe they're home, uh, maybe they're college kids or something like that, or they're working remotely, can earn a whole bunch of money. 20 grand, 22,000 plus, 0% tax rate, that that's 20 grand that you would have paid your regular marginal tax rate on. Okay. Uh the other benefit to this is if you travel for business, which we have a slide on later, and your kids work in the business, their travel with you now becomes a deduction. If they're not your employees, you can't write off their travel legally. Uh, but if there's a business purpose for the trip, then you can write it off. What some of our clients do when their kids aren't on payroll is like Jackie and I would pay for our flight somewhere. Uh, but our child that's not on payroll, we may use like credit card points to pay for her ticket because it doesn't cost us anything. Don't need a tax benefit. Okay, depreciation. I like to do the first part of this and then give Jackie the hard part of it because I need to explain depreciation in a way that I understand it, because then I know it's a way that you understand it, and then she can explain it in like the really useful way. So, basic idea is most of us are under cash accounting. In other words, I spent the money, I get to write the thing off. So when I went and bought this shredder, I got to take that expense, right? So office equipment or a prop. Can I deduct shredded? I'm not gonna ask about that. Okay. But you go out and buy paper, laptops, the stuff that you use in your office. You get to write that off. You spent the money. But there are certain things where the government came in and said, Well, even though you spent the money, the thing that you bought has a lifespan. So we're gonna force you to write it off over the lifespan of that thing. So you can't write it all off in year one. So, real estate as an example. You go and buy a piece of real estate, generally speaking, I'm oversimplifying, some CPA is gonna yell at me. You buy a piece of residential real estate, you can depreciate that over 27 and a half years. So if you buy a million dollar piece of real estate, you get a tiny little chunk of it every year that you get to write off, even though you spent a million bucks on your piece of real estate, right? Cars may be what, five years, seven years? I don't even know. Um, so basically, what the what the government said is you can't get the full tax benefit. You can't take the full deduction of this thing. You have to spread it out over the period of time. Now there's accountants who say, yeah, but that's more of a reflection of how the expenses actually occur. We don't care. We spent the cash, we want to be able to take the deduction, right? So uh the good news is there's a concept called bonus appreciation that says, remember when you had to write that thing off over a big period of time? We're actually gonna write you, let you write off a whole bunch of it right now. And when the One Big Beautiful Bill was One Big Beautiful Bill Act was signed into law uh in July, they brought back bonus depreciation. So there's a whole bunch of things that you can write off a lot faster now. Uh that Jackie's gonna give you some examples of.
SPEAKER_00:Do you want to take the you wanted to talk to fun to now just and talk to the house? You want to talk to those?
SPEAKER_04:Do I want to do the fun ones? Well, I'll show you some possibilities and then Jackie will show you how to do it. Um, planes, boats, and automobiles. In 2023, we bought our first plane. And back then, bonus depreciation was what, 60%? 80%. 80%. So we got to write off 80% of the cost of that plane that year. This year it's 100%. If you buy a vehicle properly, which Jackie will show you how to do that, there are certain types of vehicles that you can write off 100%. So imagine this. Generally big vehicles, 6,000 pounds. So you'd see the people driving escalades, big trucks, suburbans, whatever. You can go shopping for that car right now. You can take delivery of that car in December. Your first payment isn't due until January, but you can still write off 100% of that car, assuming you follow all the rules this year. So you buy a$100,000 car, you don't spend a penny on it this year for cash flow, but you can take 100% depreciation and write off the whole thing this year. This is why you see your business owner friends driving big new fat rides towards the end of the year. It's a tax strategy. Uh, and then we have a really cool strategy on equipment leasing that a lot of our um higher income law firm clients are taking advantage of, which she will explain.
SPEAKER_00:Okay. So we talked a little bit about purchasing the big vehicle. Um so, like Adam mentioned, and if you were in the last session, um, Leah explained using a credit card is a great idea if you're trying to, if you have to spend the money anyway. We're not telling anybody go buy a vehicle just to get the tax savings. You need, you should have a reason. Don't just go spend money to save on taxes. But it's just like the credit card example that she was explaining before. When you spend the money, you go get a loan, that is when it would count. I mean, when the asset is put on your books. So that's the key thing though. The asset needs to be entitled in the name of the business. So I would recommend, you know, if you are planning on purchasing it, um, do that. Uh there is ways you could probably get around contributing it later, um, but with different states and in tax uh outside of the income tax realm, we just recommend trying to get it titled when you purchase it in the business's name. Um so we have a pair of 50% business use. You must use it for more than 50% business use. Now, here's the trick. Um you can't just get 100% for using it for more than 50% business use. The depreciation, all the expenses related to it are dependent on the amount of business use. So the m if you could have it closer to 100%, that's ideal. Now, when it is an asset, it's yeah. So you're gonna want to track your miles, you're gonna want to demonstrate that you're using it 100% business use. Now, when you can demonstrate that amount of business use and it's an asset of the business, things like the wear and tear of the vehicle, the inspections, the tires, all the things that you would be paying for on a vehicle become business expenses as well. So you get to deduct them. So that is where the depreciation helps, but also there's other um add-ons. Uh with regards to the weight, it's very specific that it needs to be over 600 or I'm sorry, 6,000 pounds from a gross vehicle weight rating. So you're looking for the G VR um weight. So that's purchasing a big vehicle. Um when it comes to real estate, um Yes. That's just, yeah, there's a that you can still there is things like section 179, which would allow you to um still accelerate depreciation, but if you want to do 100% bonus depreciation, it needs to be over. Um Yeah. So that's it. Otherwise there's a limit.
SPEAKER_04:Yeah, yeah. And just to to make it clear, the tracking your miles is a pain in the butt, right? But this is why we talked about the home office earlier. Suddenly a lot more of your miles become business miles. So there can be some planning and strategy around that. It's a good question.
SPEAKER_00:Right. Okay. So real estate. Um if you are able to be a real estate professional, or if your spouse is able to be a real estate professional, there's a whole host of opportunities when it comes to the tax code. Odds are um we're just talking about you as attorneys. So real estate professional is probably not in your universe.
SPEAKER_04:It's what's the you have to work like 750 hours or something. It's a pretty high threshold to be considered a real estate professional and get all the benefits.
SPEAKER_00:Right. It needs to be 50% of your time or 750 hours. Well, both. I mean, you have to have the higher of the two. And then um you also need to materially participate in each property. Um, so for the rest of us. For the rest of us. There is this short-term rental loophole. And what this does is this is where you see a lot of people getting Airbnbs. That's what we're talking about. So purchasing a bus purchasing um an asset, so a condo, uh, a home that you can rent on Airbnb, the RBO, and you want to rent it um to uh a client with an average of seven days or less per client. So if you have you're basically operating a hotel, it's seen as a business instead of as just a rental real estate property. So um when we have this, there's certain rules to follow. Like I said, you have to have that average day count down, and you also need to participate in the property, have at least a hundred hours and no and more than anyone else, or 500 hours into spending on that business. And then you have the ability to take depreciation. Now, typically when we have commercial property, because this is like hotel, we depreciate that property over 39 years. But if you do a cost segregation study with bonus depreciation, this will identify parts of the property that can be accelerated, depreciated faster. And if it's in a certain bucket, the bonus depreciation even accelerates more into the first year. So that is another way to effectively uh increase your deductions, but also maybe get you closer to having that dream home, dream vacation home that one day you can take the short-term rental into.
SPEAKER_04:Is there are there any real estate attorneys in here? So this is a tough one for us because when we hear about real estate and we hear about fixtures, right? Anything that's bolted down is part of the real estate. So we would think, well, yeah, it's 39 year depreciation. But the this cost segregation study engine engineer comes in and says, even though it's bolted down, these light fixtures are something we can write off right now, and the electrical system is something that we can take over five years, and the garage doors are something that we can so they're categorizing all of this different stuff and saying, well, some of it's your 27 and a half or 20 and a half, some of it's your 39 year, but some's 10 or 5 or stuff, some is what can be written off right now. So this example, the wording is sloppy up here, but typically you buy a million-dollar piece of real estate, you may be able to write off 36,000 of that this year. But you could do a cost segregation study and potentially write off 200,000 of that this year. But that write-off you only get to offset your active income if you do the short-term rental. If you buy regular real estate, it's really hard to get the full tax benefits of that for folks like us.
SPEAKER_01:Yes. Yep. Very good.
SPEAKER_00:Yes. With right, with any thing that we're taking bonus depreciation on, you're gonna want to hold it for a period of time because um you're gonna wanna wanna have to recapture that depreciation the next year, for example. Like I wouldn't go buy a car just to get rid of it next year, for example.
SPEAKER_04:And then we get into 1031 exchanges or buy and replacement property or whatever it is. So let's I I want to speed this up just a little bit. Just a third example on here.
SPEAKER_00:Yeah, just um real quick, the equipment purchase there are partnerships out there that you can basically purchase large equipment that qualifies for bonus depreciation and rent it through that, through that partnership. So there is um different syndications um that you buy into as owner of of uh property, and um there are different strategies that you that are available there.
SPEAKER_04:So we have we have attorneys writing checks to companies that lease out equipment, getting the depreciation of the heavy equipment that they buy um without actually having to Well, I mean they still have to participate to a certain extent. All right, I'm gonna come back to these other ones, but here's what we did. We got three free resources that we want to give away. I've found that the cell service in here is really bad. So if you write down pennywise.tax forward slash GLM, uh, we have the lawyer's guide to the One Big Beautiful Bill Act. This is actually the first time we've shared that with anybody. We're about to start running some ads behind it. Uh we have a list of 151 tax strategies, deductions, and credits. So these are the things that you sit down and you go, gosh, I've never heard of any of these things. My accountant must be ruining my life. And then we have our a guide that we've been at we've had for a little while, seven tax strategies every law firm need owner needs to know. Those seven are basically what we went over today. There's a little bit of difference, but we go a little more in depth because this frankly should be a three-day workshop. So uh you can get those. All right. So we got a few more minutes. Uh, I'm gonna go quickly through PTET. General rule is this whatever you pay in state and local taxes, you get to write off on your federal taxes. That's nice. Except they put a limit on it. And for a really long or for several years, it was uh there was a$10,000 cap. So if you paid more than$10,000 of state and local taxes, you couldn't deduct that on your federal taxes. That was part of the Tax Cuts and Jobs Act in 2017. They've increased the cap. It's now$40,000 from ABBA, the one big beautiful bill act. So if you pay less than$40,000 of state and local tax, cool, you get to deduct that on your federal taxes, but there's a workaround. So if you're in a high income or a high income tax state or you make a lot of money, I think we were looking at California. Like if you're making over$450,000 in California, you need to know about this. You can, your business can make an election to pay your state and local taxes on your behalf, and then it becomes a deduction to the business. Kind of cute. It's only in certain states, and there are deadlines. So like I'm pretty sure California and New York, you've already missed for this year. So if you live in one of those states and your accountant hasn't brought this to your attention, they don't care about you. That guy's shaking his head. He knows what's up. Um, some other states like North Carolina, you have until December 31st. So again, if you're high income or a high-income tax state, something to know about, something you can do proactively. Again, you're gonna pay this money anyway. So why not fill out the form and check the box and take the tax advantage probably? Well, I'll tell you why. It's because nobody cares enough about you to tell you about this stuff. Okay. You want to talk about? We got a couple minutes to go for it.
SPEAKER_00:So this is probably a lot of the stuff that your accountant maybe tell you about. Okay, let's go throw some money in 401k or make sure you max out your 401k. Let's throw through an IRA. Um there's many uh retirement plan options out there. Um if you are, if you've recently started a retirement program for your employees, um, there is something called um the retirement plan credit, contribution credit. There's three components to it. I would look into it to see if if you've had it included on your business tax return as a credit. Um but uh so that's, you know, there's always the retirement options, and there's many more than this. We don't have them on here. And then other things to think of once you're getting into netting a million dollars, considering whether captive insurance makes sense for your business. Um, there's different solar investments out there, there's different oil and gas investments, but captive insurance, we actually see a lot of law firms take advantage of. This is where you establish a um an insurance company to self-insure you, that's a C Corp that allows you to pay premiums to self-insure yourself over to that company, which reinvests it. Um, and then if any of the loss that you know is considered when you have an insurance situation occurs, you can take those money, that money back into your business tax-free. Um, or you eventually get it back to you at a much lower tax rate if it doesn't need to get used.
SPEAKER_04:So, you PI lawyers, wouldn't you like to have your own insurance company? Yeah, they make a lot of money. All right. So one other slide that I want Jackie to go over. My formatting is pretty bad on here. Um, a lot of people say, well, I have a CPA, or I'm looking for a new CPA. And one thing that I find is really problematic with that is your CPA needs a job description. Your accountant needs a job description. I'm sure all of you have had that experience of hiring somebody in your firm where you don't give them a job description and then they disappoint you and you're like, hey, I didn't set you up for success, but you're actually ruining my life. Let's not let that happen with the accountants. So let's get an understanding of the different types of accounts. So educate everybody on that.
SPEAKER_00:Um, all right. So um Leah went through some of these situations. She talked to you about being a CFO. Okay. And so when we talk about things like wanting to spend our time differently, like yesterday when we were talking about we might work as much, but we're gonna spend our time differently. We don't want you being a bookkeeper. We don't want you to be a payroll provider. Hire hire those. There are people out there that do a great job with it. Um, a tax preparer is putting numbers in your tax return. They're not looking for all of the strategies, they're not looking to make sure that you've got everything. So we want to make sure that you this is just a form pillar. Financial accountants are looking at your historical. So they're giving you your financial reporting. They're giving you what occurred at the end of the year. They they're very important. It's very important for getting, you know, loans, et cetera. Um, but they're not looking for tax savings. Managerial accountants are doing exactly what Leah was speaking about. They're helping you with your budget, they're helping you focus on um, you know, your your business plan and making sure that you're staying within your goals and looking forward. Um tax resolution is looking backwards, but we're not like so. As tax strategists, we're not resolving uh tax problems. We are effectively being similar to uh a CFO, if you will, but only from the tax side.
SPEAKER_04:And we love working with fractional CFOs because we partner really well on that type of stuff. So we're there where they're talking about the budget and the forward-looking finances, we can throw the tax strategy into that. So we're out of time. But this is great. Thank you, everybody. Oh, also um, if you're re looking for a reason to puke into a garbage can, find your 1040 on page two, on the top of page two, line 24. That's your total tax bill for federal taxes. Um, I've caused more strokes in my life that by showing that number to our clients than I ever anticipated.
SPEAKER_00:So yeah, it's more than that amount you paid in April. You're probably paying more than that earlier in the year.
SPEAKER_01:Thanks everybody.
