Tax season is here again! Join us for an exclusive conversation with Lee Roberts, CPA, as she unveils the role accountants play in business success. Learn from her expertise in maximizing real estate investments to discover how accountants shape your financial success in the business world. Dive into the discussion now!
Key takeaways to listen for
Resources mentioned in this episode
About Lee Roberts, CPA
Lee is a Certified Public Accountant and the Managing Partner at Equitable Accounting & Tax Services. This company aims to offer top-quality tax and accounting services for your business based in Spanish Fork, Utah.
Connect with Lee
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To learn more about growing your wealth through multifamily investment opportunities, visit Monument Real Estate Capital and schedule a call!
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Tax season is here again! Join us for an exclusive conversation with Lee Roberts, CPA, as she unveils the role accountants play in business success. Learn from her expertise in maximizing real estate investments to discover how accountants shape your financial success in the business world. Dive into the discussion now!
Key takeaways to listen for
Resources mentioned in this episode
About Lee Roberts, CPA
Lee is a Certified Public Accountant and the Managing Partner at Equitable Accounting & Tax Services. This company aims to offer top-quality tax and accounting services for your business based in Spanish Fork, Utah.
Connect with Lee
Connect with Us
To learn more about growing your wealth through multifamily investment opportunities, visit Monument Real Estate Capital and schedule a call!
Follow our social media pages!
Facebook: Monument Real Estate Capital
LinkedIn: Monument Real Estate Capital
[00:00:00] Lee Roberts
The only downside to a reverse exchange is that if you have to close on the new property before the old property sell so that the cash isn't in the exchange, then you have to come up with a way to put that cash in the exchange so that property can get purchased.
[00:00:17] Podcast Intro
You are working professional but struggling to balance the workload of your career, family obligations, and preparing for your financial future. If so, this podcast is for you. You've spent years learning your craft, and now it's time to focus on your financial future. This podcast will teach you what you need to retire wealthy and happy. Let's dive in.
[00:00:39] Roger Jacobsen
Welcome to the Retire Wealthy and Happy Podcast. Today, Anthony and I are hosting Lee Roberts, who is a CPA and does tax and accounting for a lot of different investors. Welcome to the podcast, Lee.
[00:00:52] Lee Roberts
Hey, I really appreciate the opportunity to be on here today. So thanks for inviting me. I'm excited.
[00:00:58] Anthony Esparza
Absolutely. Great to have you on here, Lee. Thinking if we start off, if you could jump into your kind of your story, how you got to where you were. And I think that'd be a good start.
[00:01:07] Lee Roberts
Okay, great. And kind of interesting. I actually got into accounting when I was 12 years old. My dad decided that he had an insurance company and he wanted me to help him with his books. And so back then it was way back when there was no QuickBooks or things like that. So we did it all on a gigantic Excel spreadsheet. And he taught me how to reconcile a checkbook and taught me how to do things like that. So I paid his commissions out to his insurance agents. I did all of that reconciled and I really enjoyed it. And so in school I would pick those subjects because I really enjoyed doing that. He was also the fire chief. And so I would pay the fire people's payroll. So I was like this little 12-year-old writing checks out and he would sign them. And so I knew clear back then that that was my goal in life was to be in accounting and at some manner of accounting. And so right out of high school, I went to school to become an accountant and I got a job at a CPA firm. And at 18, I was a bookkeeper. I worked there for probably 8 years, and then I went to work in house. For a company that did engineering work, I learned a lot about contracts and job costing and things like that at that job. And then I went back to the CPA firm and worked there for another four years. And then in 2014, I decided to start my own firm, decided that I was making a lot of money for them and may as well transferred over and take care of my clients on my own.
[00:02:44]
And so since then we've started equitable accounting and tax services. And since then, we've brought on 3 partners that all have different various levels of expertise in different scenarios, which has been awesome because what some of my weaknesses have been in the past, they have strengthened. So it's been great. So now our firm does everything from paying bills to big performance for large companies and tax and estate planning. And so our biggest thing with our firm is that we want to help clients where they need help and help them recognize ways that we can to help them be more successful. So it could just be tax return preparation, but it could also be consultation on an ongoing basis. So that's basically where I've got to where I am today.
[00:03:33] Roger Jacobsen
So it's kind of a one size. Fits all where if somebody just needs tax prep, they can reach out to you. But if they want a full CFO type concierge service, you can do that as well.
[00:03:44] Lee Roberts
Yep. So I worked in house for, uh, that company I mentioned, plus I actually worked in the startup world for about four months and that was enough for me. But I did learn a lot, but then I have one of my partners. She came from PWC. So she came from one of the big five accounting firms. And then another partner was a CFO for a large company. And so I just feel like we have a lot of different style of expertise that typically public accounting don't normally have. So yeah, kind of a, we do everything.
[00:04:18] Anthony Esparza
Really cool. Sounds like you have a lot of accounting experience over the years, starting as a really young lady. What's the, in your opinion, Why businesses need accounting and CPAs, things like that.
[00:04:31] Lee Roberts
Probably so that they know where things are at to make better decisions as they go. A lot of people only come around tax time. So they hand you all the tax info. The year's already over with it's done. And they're like, here, prepare my tax return. And I'm like, well, if you would have done this differently, then you probably would have saved on taxes or. You did this real estate transaction and did you know what's going to cause this problem on your tax return? A lot of real estate transactions specifically have a lot of different effects on your tax return than people even really think. So, so my big thing is like, you need to recognize what you don't know and let somebody else help you to progress and be successful in your business. Right. You're from Utah, by the way. Yep. Uh huh. Central Utah is where I'm from originally.
[00:05:20] Anthony Esparza
And Utah is a big DIY, do it yourself state. You know, a lot of people think they can get away with doing stuff like that. Sometimes it's more important to delegate, you know, the things you don't know to the professionals. Yep. I see that a lot. Exactly.
[00:05:35] Roger Jacobsen
What do you think the right frequency To reach out to you is like, obviously the shoe box full of receipts at the end of the year isn't right and 10, 000 text calls and emails. It wouldn't be right.
[00:05:49] Lee Roberts
Yeah, it depends. It depends on what we're doing for a client. Like, I have clients that we have a consulting agreement with that. We actually are on a zoom call with them once a week. We make certain plans and say, okay, what are we doing this week? What are the things we're going to work on? So we'll go into a company and we'll try to help them see where their inefficiencies are, whether it's just in straight, like procedures, policies, whether they have employees that are duplicating other employees, work, whether an employee is just not a fit for a job position, things like that. So we go in and we help them realize what all of those things are that can be fixed. And then we work on them weekly. What's the status this week? Okay, now we're going to work on compensation. Are we paying the sales reps too high of a base salary? What is this going to result in for projection wise? So if we're more on the consulting side, then I like to meet them weekly or every other week to make sure that we're seeing the progress moving forward instead of it being like Hey, so when you get done with that, let me know because then nothing's going to progress.
[00:06:53]
For a typical tax people, I like to speak to them quarterly, what's new, what's going on. I'd love monthly, but if they don't want to do that, then I moved to quarterly. So at least quarterly. Semi annually and for sure in the fall, October, November to tax plan because we can typically take their activity as long as they're keeping a good set of books. We can take their activity and kind of make some projections for what we think they need to do differently before the end of the year. So it just kind of depends on what we're doing for them. Inevitably. We want to be doing the bookkeeping because then we can. Send them financials on a monthly basis. We're super integrated with what they do. So when they call and say, Hey, what do you think about purchasing this property? What do you think about starting this new line of revenue that we know enough about their company? We can help them make that decision.
[00:07:44] Roger Jacobsen
Do you do a high percentage of real estate clients and then a bunch of other like businesses and stuff like that?
[00:07:51] Lee Roberts
Yeah, I would probably say 75 percent of our clients are real estate based. We just have a super high volume of them because typically when you have somebody who's a really good real estate investor. They have multiple LLCs, so we might have one client specifically, but they might have 35 LLCs that they're running and then every year they set up 5 more. And so that results in a lot more real estate clients than outside of that. But we do have, I mean, we have manufacturing, we have just restaurants, we have cabinet shop, we have all sorts of different types of clients that we work with.
[00:08:29] Anthony Esparza
We talked on the last podcast we did this morning. I'm sure you know about this, but this just came in my head. You got to report something if you have an LLC. This is like a new rule. Yeah, scary from what I read.
[00:08:41] Lee Roberts
And I don't actually know how the government is planning on getting this information out to people. It's called the Corporate Transparency Act. We heard about it in our tax training and then I've seen a ton of it on TikTok, but I haven't seen actually like anything coming in the mail saying anything. So I don't know how the government thinks they're going to get the information out. But basically the purpose is that anybody who sets up any type of entity, so whether it be an LLC, a corporation, a C corp, even a single member LLC. They all need to file with the financial center. So it's called Benson. They need to file and report who the beneficial owners are. And the beneficial owners could be anyone from actual owners that are over 25 percent ownership. Or it could be people that have that type of control. So, like a CFO, like somebody like that in your group. It could even be an accountant or an attorney if they have the involvement.
[00:09:36]
There's a couple of my clients that will have to report myself on because of our heavy involvement in their company. And the reporting is typically like a passport or a driver's license. You have to track when those expire so that you can update it with them. Um, Oh, if you add new partners, so these syndication deals are going to be hard. Cause every time you add a new partner, you have to re notify them. So for any businesses that were created before January 1st, 2024, they have all of 2025 to do the reporting, but for businesses that are brand new in 2024, it, they are giving you 90 days. To report but starting in 2025, you only have 30 days to report the changes and it's like a 600 a day penalty It's big.
[00:10:25] Anthony Esparza
Yeah, it's kind of ridiculous Ridiculous, and you know, what's funny is the only reason I knew about it is because like you said I saw all over tiktok But I didn't see it anywhere else and i'm like, this is a joke like you're gonna charge 600 a day but to jump into that a little more are there tax advantage things you can do with that like say Your corporation owns the LLC.
[00:10:47] Lee Roberts
Yeah, you still have to report whoever the beneficial owner is. So you could have an LLC that owns LLCs like 40. They're just tracking. Yeah, you still have to figure out who the people are that are providing 25 percent or more of the management or 25 percent of the ownership. Like. Yeah, they have this chart on their website that goes on forever on how to figure out who are the beneficial owners in the company. So it can get really, really time consuming. And the other part is it's inevitably the taxpayer that's responsible to do the filing. But really, the attorney should mention when they're setting up their entities or. Like us as accountants, we sometimes don't even know you set one up. So we're doing taxes. And then especially if they're single member LLCs, because if they're single members, then I don't have to file a tax return. So a client may not even tell me that it exists. So it's super hard to get that information to the clients. We actually sent out a certified letter to all of our clients just to be like, Hey, this is out there. You need to know it and you need to do it. And if you want us to help you, we can help you, but we're not going to automatically do it because we don't know what entity do you even have. So it's super, super interesting.
[00:12:01] Roger Jacobsen
Crazy. That's a great update. And we got more out of that. More of that from you now than I did on the Facebook post that I saw that on.
[00:12:11] Lee Roberts
It's super, super crazy, super crazy. Even we did one just the other day, just to like follow it through from start to finish to see it. And it was just a one owner S corporation and it didn't take 10, 15 minutes. So it was not that big of a deal, but I can see some of these things are going to get super time intensive to figure out.
[00:12:32] Roger Jacobsen
So how would you phrase that for the listeners? They would call you up and say, I want to,
[00:12:38] Lee Roberts
Yeah, so they call up and they just say, I want to engage your services to file for all of my LLCs and make sure that they know that. Like I can't take responsibility for entities. They don't tell me about and things like that. Then we'll send them a engagement letter and then we'll talk about what entities they do have and what information we need from them on those. We plan to also track those and then hopefully we are able to help them remember when the expiration dates happen and things like that throughout the years. But it's super hard for tracking.
[00:13:10] Roger Jacobsen
For sure. That sounds like E. IRS is trying to get rid of all the shell companies that are out there.
[00:13:17] Lee Roberts
Yeah, it is 100 percent that the financial center is trying to find any money laundering, any fishy, cause you can set up an LLC and shut it down super quick. So what are people doing? So I think that that's why I don't know that they'll just get. Smarter, but I think that's why they're trying to do that. It should be interesting.
[00:13:37] Anthony Esparza
Man. I hate to go back to this. But it's like the whole thing with Bitcoin too. I mean, yeah, there's probably a lot of illegal use of Bitcoin, but it seems like they're trying to get a handle on everything. Kind of weird.
[00:13:47] Lee Roberts
Well, they realize people are using it to get around reporting to them, and so they're like, no, you have to report it on every kind of income or. No matter how the payment happens and so they want to be able to have control of that.
[00:14:01] Anthony Esparza
So, yep. Cool. Well, that was very interesting. Yeah, I learned a lot. A lot more than TikTok and Facebook.
[00:14:09] Lee Roberts
I know. People are always like. What is this? What is this? So it's pretty funny, but he's still learning something. Yeah.
[00:14:18] Anthony Esparza
Yeah. Okay. So I would like to know how we pay 0 in taxes every year.
[00:14:24] Lee Roberts
Well, in general or pertaining to real estate.
[00:14:29] Roger Jacobsen
Let's talk about some good tax strategies and especially for real estate investors.
[00:14:36] Lee Roberts
Okay, cool. So what I see from clients is the biggest misconception with real estate is they think they're going to go out, buy a real estate property, and they're going to magically receive a ton of write offs. They don't understand that they still have a W 2 job. If they make a hundred thousand dollars or less, they can write off real estate losses against that income, but only up to 25, 000 in losses. A doctor goes out and buys 10 properties and has all this depreciation, has losses. Well, they make over 100, 000 and so they're not going to get to write off those things against that. Now, they won't lose the write off, but they won't get to write it off against their income as of right now. It's pushed forward to a year where that property has profits. Or where that property is sold and then those losses are released. So, I always tell clients that they need to consult their CPA to know if their salary specifically is over 150, 000, what can I do with real estate in order to help me on my tax return? And. A lot of people, I have to help them realize that real estate is not all about like, what can I write off this year? It's also about like building a portfolio, getting more net worth, things like that. So sometimes if people have high net worth and high income on their tax return, they can't write it off right now, but that's okay because in 5 years when they sell the property, it's released and they can write it off.
[00:16:06]
And so then it's just kind of like. Changing where the deduction is, but in the meantime, their real estate is growing in value. And so that's what I try to help people see is understand how buying real estate would help their specific situation because it doesn't automatically result in these big, large losses. It could, though, if people were a real estate professional, it could result in the ability to write the losses from real estate off against their ordinary income, depending on if they qualify for that. A real estate professional is someone who spends. More time doing real estate than their normal job, and they have to spend 750 hours or more doing real estate in one year. And so that could be like your hours could come from, like, being a real estate agent or property managing or coordinating, coordinating repairs on flips or anything like that. So that's what we're hoping for is that people can qualify for that. But sometimes it does get hard. Do you see that a lot in what you work on, Roger?
[00:17:12] Roger Jacobsen
Yeah. Let's kind of drop back and talk about what residential and commercial depreciation is. Yeah, for sure. And then we can go into cost segregation.
[00:17:21] Lee Roberts
No, that's great. So typically when you purchase a rental property, the building is depreciated out over 27 and a half years residential, or 39 years for commercial. So if you have like a property that you purchase for 400,000. You have to allocate a portion to the land value because land itself is not depreciable land appreciates in value. So you buy a property for 400, 000, you say 300, 000 is the actual building. And 100, 000 is land. So now we have this building that's 300, 000. It's just a primary or just a one person rental unit and it takes 27 and a half years to depreciate that which is only like 11, 000 a year. So it takes a really long time to depreciate that. Property out if it's commercial, it's even slower. And so that's what we're talking about, like, cost segregation.
[00:18:19]
That's a tax strategy in order to increase that amount of depreciation. Now, instead of waiting for the entire 27 and a half years to write off that purchase of. The 300, 000. And so that's what I, that's what I like to talk to people about as a cost segregation 1 note on that real quick. Is that a cost segregation can still be done for 2023, even though we're in 2024. so it can still be done until you file the next year's tax return. That isn't something you have to do before the end of the year. So I typically tell people, let's look at how your tax situation pans out. And then we can decide to do a cost segregation or not. So do you want me to share how we do process? Absolutely. Okay, so you have to hire a cost segregation company to be involved and they have an engineer on staff. And that engineer will go out to the property. So in this example, the 300, 000 dollar building, they would go out to that property and they walk through it and they determine what in that building is actually has a life of less than the 27 and a half years.
[00:19:30]
So, maybe the building structure itself is the 27 and a half years, but, you know, your electrical can go bad. Your HVAC can go bad. All those things have a lower life than the 27 and a half years. So, the engineer goes through and he says, okay, in these walls, there's electricity, there's plumbing. There's carpet, so you bought this whole property and it has all of these things in it. What is actually a lower life than the structure itself? So the engineer goes through and they start putting all of the things in the house in different buckets. So we have the structure, which will be the 27 and a half years. And then we have a 5 year bucket, a 7 year bucket, a 10 year, a 15, a 20 year. And so they take the 300, 000 property and they maybe end up putting, I don't know, 100, 000 into these other little buckets. So, 200, 000 of that property is still going to be depreciated out over the 27 and a half years. But there's 100, 000 that are in these lower buckets. So now you can depreciate those items out over the 5, the 7, the 10 years, instead of waiting the 27 and a half.
[00:20:40]
So it's going to maximize the depreciation up front instead of the, you know, over that many years. Back a couple years ago, they came up with this additional thing called bonus depreciation and bonus depreciation says that if you have assets in those buckets, we were just talking about if they're in that of less than 20 years or less, if they're in the 5, the 7, 15, the 20 year bucket. Now, we can bonus depreciate them and write all of those off in 1 year. So they call that 100 percent bonus depreciation. So where before we were at a 300, 000 over 27 and a half years, now we're at, um, 100, 000 can be quick and it can be even quicker now because of bonus. Now, in 2022, bonus depreciation was at 100 percent and in 2023, it was only 80 percent and in 60 percent and it's kind of set to expire here in the next four years, but there's lots of controversy right now with trying to extend the bonus depreciation, so I wouldn't be surprised if it extends a little bit more.
[00:21:47] Anthony Esparza
Sorry to cut you off. I just had a quick thought. With that bonus depreciation starting at 100, now it's at 60. Uh huh. And you know, there's speculation it may expire. Would it be smart to go ahead and just write it all off? Because I was gonna ask like, yeah, you have bonus depreciation, but then you have your tax strategy too on top of that.
[00:22:06] Lee Roberts
Yeah. So it's kind of funny. They do the cost segregation and they write off all of this. And then when we go to sell the property in five years, they have this big gain. Because they've already written off a lot of the property. And so that's part of the strategy to say, okay, if we write all this off in this year, then what's it going to like, how long are you keeping the property for? Because the ultimate is to pay the least amount of tax legally, but how do you pay the least amount of tax? Will we plan on what is going to happen in their income for each one of the years? So that we know where we want to maximize it. So maybe this year they sold a property, had a big gain. So let's offset it with the cost sec, you know, on another property. So there could be different scenarios where we're writing it off. So even if it's only 60%. Like it is right now in 2024. It's still 60 percent of a big chunk that you wouldn't typically get to write off. Right. Gotcha. Interesting. Yeah. There's also other limitations that can happen on your personal tax return. So they really need to talk to their CPA about like, Hey, if we decide to do this. Does it make sense for my specific situation? It doesn't work for everybody's situation.
[00:23:16] Anthony Esparza
Right. And to the average person, that sounds like a bunch of mumbo jumbo. Like, that's why it's important to have a good CPA, you know? Yep. Yep. I definitely learned that one the hard way. I didn't get in trouble or anything, but I mean. Probably paid a lot more than I should have a few times. Probably paid more than you should have, yep.
[00:23:35] Roger Jacobsen
We should discuss that one, it's not going to do anything on your personal residence.
[00:23:39] Lee Roberts
Yeah, correct. So bonus depreciation is for investment properties. It is not for primary residence, but primary residence does have that exclusion. If you're a single person and your gain on your primary is over 250, 000, you'd only have to pay tax on the gain over 250, 000. So if you sold it and you had a profit of A gain of like 200, 000, you can do the primary residence exclusion. You can do it every 2 years. I actually have a client that moves into a house, lives there 2 years. Fixes it up while he's there and then sells it has a big game. He doesn't have to pay tax on and then he moves to another one and he's continually done that for 15 years now. So I just had a client do that.
[00:24:21] Anthony Esparza
Well, they lived there for a while, but invested enough into the home where it's going to be pretty close to nothing. What they pay on the capital gains.
[00:24:28] Roger Jacobsen
And also Anthony, just so you know, if you get married, that jumps up to 500, 000, right? So get yourself somebody.
[00:24:37] Lee Roberts
Just for, you know, a couple of years, right? I know.
[00:24:41] Anthony Esparza
Find somebody you can marry. I mean, that's the fun. It's like a business of the day. That's right. I'll marry him, we'll sign an agreement, and then we'll get divorced.
[00:24:49] Lee Roberts
So, so I tell people though, like, even though it's your primary residence, I would still keep track of all the improvements that you're doing for it. Because when we do that calculation on a primary residence cell, And if you really do have a large gain we can take into account all the improvements you've ever done on it All the things you've put into that house throughout the years so they won't really be like a write off on your tax return But they can help you calculate that gain To get you under that threshold to be able to not pay tax on the primary residence.
[00:25:18] Anthony Esparza
Okay, so I have a question if I did 10 000 in updates on my property last year 10 000 this year Is it smarter just to wait until I sell or to take a little bit every year?
[00:25:31] Lee Roberts
For your primary or for a primary, there isn't a deduction that you'll take for your primary until you sell and it would just help you increase your, they call it basis. It's how much money you've put into the property. And what if I have office space within my primary residence? It depends. So office space can be used to write up against your income. If you're self employed, not if you're a W2 anymore, they don't allow that. But if you're self employed, you can offset it. But keep in mind that if you ever write off part of your house, so if you say 15 percent of my house is used for business and you're depreciating it. Well, now your house becomes a business asset. It's not going to fit that primary residence exclusion as well. That's a discussion to have with your CPA too. I usually, with my clients, I typically have them write off the utilities for that portion of the house, any repairs they do for that portion, just things like that. Not so much the actual house itself.
[00:26:32] Anthony Esparza
Right. Then you're kind of stretching it into the, like you said, a business asset. Yep.
[00:26:37] Roger Jacobsen
And again, this is educational advice, not legal and tax advice, please talk to your CPA and tax advisors, tax attorneys, and get correct information.
[00:26:49] Lee Roberts
Yep. It's interesting because a lot of the tax law is very ambiguous. So one CPA may view it one way and another CPA may view it another way. And so, yeah, talk to your specific CPA and make sure that you're on the same page for what. How they want to handle situations.
[00:27:09] Roger Jacobsen
Lee, are all your clients in Utah?
[00:27:11] Lee Roberts
No, we have a lot in all over the place, actually. I would probably say probably about 20 states, probably. So, they're all over. In fact, it's kind of transitioned a lot. Back when I originally became CPA, all of my clients would come in, sit down, you'd have your typical tax appointment. It's an hour long, they leave, you prepare the taxes, that whole process. But now it's a lot more, we get a lot of the information digitally. We're so involved with our clients that we just kind of have a lot of the information. We can start working on things without even getting anything from them. And so it's just kind of transitions. I only have 12 tax appointments where they sit down with me. That's it. About three turns. We prefer it. I only have that many anymore that come and sit down and they're usually little old ladies.
[00:28:02] Roger Jacobsen
That's the same thing in real estate too, because with the digital world, it's still a blue wet signature on every single mortgage I've ever heard of, but I can buy a house and clothes with hard money. And I don't even have to even go into the escrow office at all. If the lender, such as the great Matt Atkinson allows it. And they can just do a digital video for even the signing and nothing has to even be done and it's getting better and better. But then when we have these older clients, you got to go and get a piece of paper and print on it and then take it to them and have them look at it and sign on it. So. Yeah, I'm kind of in the middle there, or I'm old enough that we didn't know what a computer was when I was like, 10 years old, but now it's like, everything is just so automated.
[00:28:58] Lee Roberts
It is super automated. Yeah.
[00:29:01] Anthony Esparza
I've done clothings and nobody has to go to the escrow office. It's all digital. It's crazy. Super crazy, but that's kind of what I learned and I grew up and so for me, it's
[00:29:12] Lee Roberts
You're a little younger than we are.
[00:29:15] Anthony Esparza
Yeah, a little bit. You guys aren't too much older, but
[00:29:18] Roger Jacobsen
I'm not gonna argue with that Let's talk about what records to keep okay, how will the best clients share them with you
[00:29:27] Lee Roberts
So the records to keep super good to know, because if nobody's ever been through an audit and they don't understand this, but the IRS, if they audit you, they're going to require you to provide them with actual receipts. A credit card statement doesn't work. A bank statement doesn't work. They will ask for those things to kind of reconcile what you've deducted, but they actually don't work as proof for the expense they want the actual receipt. Now they will take a scanned version of it. So, I usually tell clients to just kind of collect them and then just put them all on the scanner and just scan a big chunk in for their receipts for the year. So, those have to be kept for at least 4 years from the date that you file the tax return. There's a 3 year statute of limitations from the date that the tax return is filed. I usually tell people to keep everything for 4 years. So that's receipts, bank statements, any sort of data behind the scenes that you're using to prepare a tax return.
[00:30:25]
So all of that data has to be kept. Tax returns need to be kept for 7 to 10 years. So 7 years, unless they think that there's something fraudulent happening, because then they can go back 10 years. So I usually tell people records for 4 years tax returns for 7 years. I don't know why you wouldn't keep a copy of all of your tax returns forever now that we can save them all as PDFs somewhere, but that's what the type of records would be for a real estate professional. We talked about that a little while ago for that specifically. They want the records to prove your 750 hours a year. They want the records to be the worst contemporaneous. So they wanted them to be as you're going. They don't want someone making it up after the fact. So if you go to them and you say, I'm a real estate professional, here's my Google calendar. They're going to go, well, what did you really do? Or obviously you went back and just wrote people's names every hour. Like what did you do? So they want things like emails or minutes from meetings or things like that to prove that as you were going, you were keeping notes on how you came up with that amount of hours.
[00:31:35]
And I will say that in September, they released job opportunities for new IRS auditors, 3000 of them, and they want. The higher end people like myself, like people who have experience and expertise in tax to come on and they're offering them a lot of pay and a lot of benefits. So I really want to start getting some more experienced auditors and it's going to start hitting more and they'll hit all the losses that we all like to write off with real estate and stuff. Those will be things that they'll focus on. I'm sure good to know. Yeah, so just to bring this 1, uh, 1 of the things that we talked about earlier was the cost seg that can now you're depreciating everything out on front like that. But then when you go to sell the property, now you have a big gain. So, how do we get rid of that big game? Maybe not pay. I mean, you can't ever well, there is 1 way you can get rid of it permanently, but for the majority of the people. You're just deferring it for the future, but how can we defer it? How can we not pay tax on it in the current year? And that's where a 1031 exchange comes into play on a 1031.
[00:32:44]
You cannot touch the money. And I'll have people that will call me and say, Hey, I want to do a 1031 on this property. I sold the other day. And I'm like, well, did you enlist to 1031 exchange company before you sold it? And they're like, Oh no, don't I have like a year to re Invest it, and I'm like, no, you can't touch them. So for a 1031, you have to engage that 1031 exchange company ahead of time. You sell the property, has this big gain, the cash goes straight to the intermediary, straight to the exchange company, you don't touch it. And then you have to replace it with another property. There's deadlines. You have 45 days to identify it. 180 days to actually purchase the new property. It has to be have a fair market value of more than your old one. It has to have more debt than your old one. There's just some certain criteria. But if you can do it, then you defer that game and you don't have to pay that gain right away. So now the cash that you got from selling the first one is using to invest in a new property instead of going to the IRS.
[00:33:46]
Right. So I had an example that I wanted to share on that. So there's I had a client that had six residential properties, so six doors, and he was bold, and he decided to buy a commercial property and sell all six of those. So all the equity he had in all six of those rolled into the new commercial property. You can actually do what's called a reverse exchange, where you buy the new property before you sell all the other properties. And so he actually did that. He bought the commercial and then sold all the one doors. And since then, he's done about four more 10 30 ones and keeps rolling up. And now he's generated revenue of about 550, 000 a year in rental income, just by the gigantic commercial properties he's rolled into and no gain. He hasn't paid any gains because he just keeps pushing it down the line.
[00:34:45] Roger Jacobsen
That's the thing about that. Is when you get into these larger properties, they don't just show up and sit around for you to sell your six houses. So, rather than identifying the property and having 45 days to do that and closing on it, I mean, there's commercial loans that take more than 180 days. There are just buy that property and then you can sell off the individual rental properties and just apply that towards them.
[00:35:14] Lee Roberts
Yep. The only downside to a reverse exchange is that if you have to close on the new property before the old property sell so that the cash isn't in the exchange. Then you have to come up with a way to put that cash in the exchange so that property can get purchased. But like Roger said, commercials take a long time. So that's what I always suggest to people is find the commercial property, get it under contract, then you can start selling the other properties and getting that cash in the exchange before you even have to close on the new property. I have a quick question on the reverse.
[00:35:49] Anthony Esparza
Do the same rules apply where you have to set it up before it all transacts or?
[00:35:55] Lee Roberts
Absolutely. In fact, when you do a reverse exchange, the new property is actually purchased in the name of the intermediary. You can't even hold it. Okay. They set up an LLC. Where they are 100 percent the owner, but you're the manager, and so the new properties purchased in that LLC, and then they sign an agreement that says when this exchange closes, we'll sign over our rights to this LLC to you, so then you own the property. So it's not like you can go buy it. And then go, Hey, I want to do a reverse on this property. It's got to be set up way before. You need to find an exchange company that knows what they're doing too. I'll never forget one of my clients that came in and sat down and he sat down and he's like, I did an exchange this year and I said, okay. And he handed me the documents. And as he's sitting here, I'm looking at the sell property and the purchase property. And he didn't meet the guidelines. He 100 percent had botched it. So he comes in, like I did it good. And I was like, so. Who did this exchange for you? And he's like, Oh, science bank. They just have a department and they hold my money.
[00:37:00]
And I was like, okay, so it doesn't qualify. So as he's sitting here, I tell him that he botched it feels 64, 000 in tax. So he's angry. Of course. He calls the bank and it's like, Hey, this was botched. And they said, well, we told you to consult your accountant. We're sorry. Would you like your 750 feedback? So I'm like, you have to hire people that know what they're doing, that you can consult with and have it set up ahead of time. First of all, he should talk to me, but he also should have talked to not go for the cheapest price, but find out who's the most experienced in exchanges to make sure he was doing it correctly.
[00:37:42] Roger Jacobsen
And the exchanges is not a licensed, controlled company. Exactly. You can say you're an exchange specialist and you could give them all your money and they could disappear off into the night. So definitely that them as well. Exactly. It's not the IRS, it's some sleaze bag that gets a business card and a business and takes your money and says, okay, just let us know when you've got your new property and then you go back there and the doors closed and the lights are off and. Nobody knows who you're talking about. There are some instances out there that have happened that way.
[00:38:22] Anthony Esparza
Yep. I mean, other than that, though, other than a 1031 or a reverse, the only other way you're going to do it without paying taxes is if you have enough write offs.
[00:38:29] Lee Roberts
And that's part of like involving your CPA too, because what I like to do is I like to keep a running track record. Of what each of the properties that a client owns are doing so that we can decide which ones have, like, the lower rate of return on them that we want to sell these 3 properties. But then we also need to know how much cash am I going to get at closing? And what's my game? Because if we know those numbers. Then we can say, well, this one only has a 30, 000 gain. So I would just pay the tax on that. Or this one has 100, 000 gain, but we could do a cost seg on this other one. So maybe we don't do a 1031 so you can keep your money and then let's do a cost seg over here and that'll offset the gain. So there's like so much strategy that goes into. Whether or not you pay the tax on the 1031 or whether you do a cost seg or anything like that. And the cost segs, if they really do shut off bonus depreciation, the cost segs will be less appealing to people because they won't have as much benefit up front. They've always been around and of course the heat really turned up when they came up with the bonus depreciation of 100%.
[00:39:34]
So I mentioned earlier there is one way you can get out of paying tax. That gain we keep deferring forward as a 1031. The way you get out of ever paying the gain back to the IRS would be if you give it to someone after your death. So for instance, if Roger owned a property and he had this 500, 000 gain sitting there forever, and then upon his death, the trust was giving it to his children, the children would get a step up in basis. So the date that he died, you would look at the value of it, and now that they would get to use the step up value and not what he paid for it. So they wouldn't have to pay tax on his gain. That's the only way to ever keep up with the gain forever. But it can't change title until after death. I have lots of people who put like their mom's getting old, so they put themselves on her house, and I'm like, no, no, no, no, you've screwed it up. Back off. So it has to happen after death and then that is a way that you can defer that game forever. And then when you die, it'll just go away.
[00:40:37] Roger Jacobsen
So also should mention for Utah residents in the other states, they're the same that they need to have their property person who may die. You know, trust because a will does not transfer property in Utah. No, it doesn't. And we actually have been doing a lot of work with attorneys on estate planning based on how things are titled. For example, just real quick story. I had a client that he had four rental properties in a single member LLC. He was a married client, but he was the only owner of the single member LLC. His wife wasn't on anything. So she actually passed away and he called me and asked me if he could get a step up for her half of the basis in those properties, but he can't because she wasn't on the properties at all. So in Utah, it's based off of how the properties are deeded. So it ended up where he's not getting a step up. Whereas if he would have had a partnership 50 50, then when she died, We could have bumped up 50 percent of the property and have the step up and had less of a gain later. So, there's a lot of trust in estate planning to make sure that in the end, you're not paying estate taxes more than you have to. There's lots of rules of that too.
[00:41:55] Roger Jacobsen
It's good to know. Kind of another deep question, but. In a company, you can have the LLC owned by whoever with rights of survivorship and contractual obligations to transfer ownership in a personal residence. Would you recommend that people would have a tenant in common in Utah?
[00:42:15] Lee Roberts
That's how it is. So if you have 2 people living in the same house. Whether they're a spouse or whether they're just two people living in that house. Those two people could have separate wills that say, when I die, I want my kids. So like, my husband and I, we both have kids from a prior marriage. Well, they would say, okay, so if one of us dies, then his kids want half of the house. Well, When you have joint tenancy like that, and we're both on title, then if he dies, I just automatically get it. Even if you're not married. So even if you were unmarried living together, you can't change that in a will. It's going to be, if you're joint tenants, then it just goes to the other person. So there's certain ways that you want to, like, set up the ownership of the property to make sure that it's going with what you actually want once you die or once the other person dies. Because Utah is a little bit different with that.
[00:43:04] Roger Jacobsen
Good to know. We definitely should have somebody that specializes in trust do a quick deep dive in how all their ownership should be. And we have had Jeff Brelio in the past who's definitely an expert at that.
[00:43:16] Lee Roberts
We actually had our trust set up a few years ago and I found another guy that I like that I had him do a bunch of work on it. I personally have a bunch of different companies and so they restructured all of it and how it's set up. So, yeah, you really have to talk to an attorney that knows what they're doing and then involve the CPA. That's another thing I see a lot is attorney may make a decision and put it in the trust a certain way, but they're not consulting with the CPA to go. Okay. What's your take on this? Because in the end, you don't want to die and have half of the estate go to pay tax. You want it to be the best benefit for your beneficiary. So you have to have a plan. So there's lots of planning that goes involved in that for sure.
[00:43:59] Roger Jacobsen
Do you remember the line? That we came up with,
[00:44:02] Lee Roberts
Oh, the line, yes, find a specialized real estate consultant, not a Joe Schmo CPA. You have to have somebody that's got experience CPA, my most ideal client will work with the CPA and an attorney and an attorney specializing in. Trust in the States, plus an attorney on corporate law, plus a financial advisor. And if you have all those people kind of seeing what the best benefit is for the client, then you can make a plan for the future. So absolutely find people that have the expertise. Yeah. It's probably overwhelming to hear that.
[00:44:37] Roger Jacobsen
It sounds expensive in my life. I've gone from being a very large introvert to having a very good capability in construction. And what I need is definitely more of that. The specialized tax attorney, the specialized financial advisor. And as I get better and bigger, I'll definitely keep that in mind and grow. But it's just so hard when you're starting out and it's like some days you work and it's all about making bread. It's just. Get the bread from their pocket to yours and in a way that you can feed your family Yeah, and then you learn these other things, you know, hopefully from things like this podcast and not bad real world Experience.
[00:45:23] Lee Roberts
Yep. So a quick story about retirement planning I had a client that that called me one day and she's like, hey, I want to talk to you about something She'd been a client for five years every year. I just got Couple of real estate K ones with a little bit of loss on him. She had some social security and a little bit of a state pension plan, like super low income, really low income. And so she calls me and she's like, Hey, I'm getting worried about my required minimum distributions on my IRA. Because when you're at a certain age, 72 years old, that you're going to start taking money from your IRAs. And I said, your IRA, she hadn't contributed to anything in the five years. So I didn't even know she had an IRA. So I said, what IRA do you have? And she goes, well, I got an IRA that's sitting there and that required minimum distributions are going to be huge. And I'm afraid of the taxes. I said, well, how much do you have sitting in there? She's like 2 million. Like what? There's 2 million sitting in an IRA and she's like, yeah, so I'd like to kind of come up with a strategy and I'm like, oh, my gosh.
[00:46:24]
So if we would have taken the last 5 years where your income was 10, 000 a year and been rolling over into a Roth paying super low taxes. We could be making a plan. So what we did is we used real estate and we used her low income. So we set up a plan for her to say, in 2023, you need to be involved with a cost segregation or buy a property. So you'll pull money from your IRA, you're gonna buy into a property, we're gonna cost seg the property, then we're gonna roll part of the IRA into a Roth. And anyway, we came up with this plan to use real estate and cost eggs over the next 3 years. And then, um, over the next 10, we were going to pull out almost all of her raw or all of her regular IRA, roll it into a Roth. And, um, totally total tax for all those years. We're going to be only 20 percent a year. So we kept really low rates because of how we were doing it. But yeah, I had no idea she even had an IRA. You need to involve your CPA in this kind of decision making so that we can help you legally not pay tax.
[00:47:33] Roger Jacobsen
That's a great story. And that gives me a lot of years now to procrastinate doing more planning. Yeah, don't procrastinate.
[00:47:42] Lee Roberts
Don't procrastinate. I about died when she told me there was 2 million. I was like, what? Because there's nothing I would need each year because she wasn't putting anything in it. So for tax prep, I didn't need anything. So how would I have ever known she had that much sitting there? And we could have totally been taken advantage of it.
[00:47:58] Anthony Esparza
And that's why it's important, all the viewers and listeners, to make sure you cover all your bases. We talked to your CPA, you have to have a CPA that knows what that knows. Yeah. I mean, after speaking with you, I'm like, I don't know if they knew what they were doing.
[00:48:13] Roger Jacobsen
It just gets worse. Yeah. Well, thanks for jumping on with us today. So go into the final floor. You want to do that one, Anthony?
[00:48:23] Anthony Esparza
Absolutely. Final four questions. Um, what is your favorite book, business book? Something related to your line of work.
[00:48:33] Lee Roberts
I probably have 2. So the 1st one is called Who Moved My Cheese by Spencer Johnson. A lot of people haven't read that 1. That 1 had a big, um, really hit me hard when, when I read it, and it might have been the point of my career that I was in, but there was a lot of changes that were happening at the CPA firm I was working at and they required us to read it. And I read it and it talks a lot about the power of change, the power of doing the same thing day in and day out, but expecting a different result. And so I, that one really hit me at home. Like, Hey, I can, I can make changes. I can grow and progress and. I'm not be frustrated with that change. So I, I like that 1 and then the other 1 is, is thinking girl rich. And I know tons of people have read that 1 for me, positive thinking goes such a long way. So you have positive thinking and then you have. You know, your persistence and your focus and things like that, and those things will help you become successful. And a lot of people just kind of say, well, I want to be successful, but then they step back and don't really. Do anything to make it move forward. So, even if you do, and you fell and you do, and you felt at least you're making progress. Learning from you're learning from those failures. So those. Those would probably be the 2 that have. Most changed my success.
[00:49:52] Roger Jacobsen
I would say I'm going down, uh, other books And i've gotten all of them that are on audible I think i've got five three of them that are still in my queue, and I haven't even listened to and The whom of my cheese is definitely one of the best books I've read on pivoting. Yeah, it's pivoting and it's what you can do because it's not going to be the same like anthony's much younger and it's going to be a lot more changes over his career But even me, like, you know, I had a bad year last year and it was like, well, now what do I do? Got to stay busy. Don't want to sit on the couch and watch reruns. I need to, you know, pivot and change. And that really helps with that mindset.
[00:50:35] Lee Roberts
Yep. And you were mentioning earlier, Roger, how you used to be an introvert and it was probably like really hard for you to get out of that shell, but you did it. You made a change. And now you're more successful because of it. And that's exactly what that book shows you. Exactly.
[00:50:51] Anthony Esparza
All right, moving on to question two. Lee, what makes you happy or brings you happiness?
[00:50:56] Lee Roberts
Probably that I can help others succeed, whether it be my daughter who started a flower company or whether it be clients that are frustrated year after year. They have This profit of 88, 000 and they can't seem to increase it and they involve us. That was four years ago. And last year we just closed out their year with a 687, 000 profit. So to me, that makes me feel good. If I'm consulting with somebody and they don't really take my advice or don't make changes, I almost don't even want to do it because I'm like, I want you to succeed. And if you'll troubleshoot with me and make changes, then you can be more successful. And so. Probably what brings me happiness would be that would be watching like we made these changes and look you're being successful and that brings the excitement in life. Nice.
[00:51:43] Anthony Esparza
I love that. Question number three. What is your future retirement look like? And or do you have one?
[00:51:48] Lee Roberts
I love doing what I do. So I don't consider it a job. So to me, I don't know that I'll ever officially retire, retire. I would probably work less as I leverage my time, as I get more experienced people underneath me, then I'm able to work less and hopefully spend more time doing other things. But I love to invest. I actually have two duplexes, a fourplex and a commercial property myself. And I do love that. I love finding new properties. Um, I do love that side of it. I also find enjoyment with having. Eight kids I find enjoyment helping them learn how to be more successful so for retirement I would just say that I spend less time doing the day to day of working but doing more time. Helping other like helping my employees get more successful or helping my children be more successful that's how I would see my retirement I don't think I'll ever. Stop working like the thought of like, retiring and just sitting around is like, I can't.
[00:52:51] Anthony Esparza
Yeah, that's awesome. Very common answer. Most people don't don't have a retirement plan where they're sitting on the beach doing nothing. All right, and final question for today is what is the best way to give back?
[00:53:08] Lee Roberts
I would say service, like if there's a something going on around that say come provide this service or do that. I do like to do that. I do like to make sure that people around me feel special and remembered. Probably that's the biggest way. Obviously there's monetary ways, but those are the ways that I personally could give back without, even if I didn't have money, that would be a way you could give back is just making sure that you're taking care of those around you. I, uh, I tease because I like to cook. So, I feel like when someone's feeling down or something, then I bake cookies or something like that. So, just remember other people and don't focus on yourself. Always think of other people and how to help them. So, that's how I would give back.
[00:53:54] Anthony Esparza
Awesome. Well, that rounds out the final four questions. And Leigh, it was an honor. Pleasure speaking and getting to know you today. Yeah. Thanks for being on the show.
[00:54:04] Lee Roberts
Yeah, for sure. I enjoyed it. You guys have been awesome.
[00:54:06] Roger Jacobsen
Yeah. Thank you so much. You've really had a great story on this topic and provide a lot of information. Thank you. Yeah. Yep. For sure. To our listeners, we have Lee Roberts here on the podcast today talking about tax strategies, what to do, cost segregation, bonus depreciation, and other things. Thank you so much. We'll see you next time on the Retire Wealthy and Happy Podcast.
[00:54:30] Podcast Outro
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