Boost your bottom line with Nathan Merrill

Profit talk isn’t taboo even in the world of benefits. This week on In Sync, James Holland and Jamie Linkowski (co-founders of Synchronomics) bring in attorney and tax specialist Nathan Merrill partner at Goodspeed Merrill, for a no-fluff look at how business owners can boost cash flow and profits, starting with smarter benefits.

Nathan shares everything from renewable energy tax credits to real-world tax moves, to determine what’s  working well now. He gives a detailed lesson (with some fascinating history on why we have access to these credits!) on how benefits tie directly to your bottom line. The hosts dig into the true cost of health insurance, practical ways to build affordable plans, and why retirement benefits don’t have to break the bank.

Nathan explains how it's all built into the tax code and how smart planning now gives you more options than waiting for tax season. 

Find more on Nathan in the notes, and subscribe for more answers, less jargon.
Learn more at https://Synchronomics.com.

Learn more about Goodspeed Merrill: https://goodspeedmerrill.com/, and Nathan Merrill: https://www.linkedin.com/in/nathanmerrill/.

Transcript

SPEAKER_00 0:05

Welcome back to InSync with Synchronomics. I'm your host, James Holland. I'm here with my co-host and co-founder, Jamie Linkowski.

SPEAKER_02 0:12

Hello, everybody.

SPEAKER_00 0:14

Very excited about today's episode because we're going to be talking about something that we discuss a lot internally but haven't had a chance to on the podcast just yet, and that's profit and profitability, how improving your benefits by boosting your bottom line. My next guest is just as excited about helping business owners improve their bottom line, although he talks about it in a slightly different approach. Nathan Merrill is an attorney and founding partner of Good Speed Merald. He specializes in working with business owners, and you can imagine, spends a great deal of time talking about optimizing cash flow and better profitability. And we're very excited to have Nathan with us. Nathan, thank you for taking the time this morning.

SPEAKER_01 0:52

Thanks for the opportunity.

SPEAKER_00 0:53

Again, just a little background. A lot of our work and opportunities come from other advisors. So we had the good fortune to meet Nathan a few years ago through one of our um advisor partners. And he's been uh terrific about getting us up to speed on a on a super complex topic. And if there's one thing that unites, I think, all employers is I don't want to use the word disdain, I'll and I'll defer to Marijuana, but their their dislike of paying taxes and their ability to mitigate those uh opportunities. So we're gonna jump right into uh the the different opportunities that are available from a from a cash flow perspective. I know one of the ones we've discussed um at length, Nathan, is this renewable energy tax credit. So if you could just give the folks a little background on the opportunity.

SPEAKER_01 1:43

Yeah, so what we do is is utilize the code in a way where we engineer, as we talked about, optimized solutions, where we take a situation like investment in a renewable energy project, and that investment will effectively result in tax characteristics that help people become more tax efficient. Tax characteristics being credits in the form of renewable energy credits or depreciation and/or depreciation that comes from the acquisition of the asset. So you're you're basically getting tax efficiency by doing good in the form of investing in renewable energy and receiving tax credits and depreciation back that offset significantly um taxable income from other sources from a business, that sort of thing.

SPEAKER_00 2:33

Great. And I know uh if and if you could just share a little bit more of the of the project itself. I know that with the uh adoption of the big beautiful bill, some solar opportunities were impacted, and this one is a little different.

SPEAKER_01 2:49

Yeah, it's really interesting because as a lot of people know, the the wind farms and the solar farms have been what have garnered a lot of the investment, a lot of the intention over the last decade or so since really renewable energy was introduced to the code as a tax incentive. So at a fundamental level, let me just explain what the tax credits are. Um for an investment in it in a tax asset or a solar or uh excuse me, renewable energy asset, you're getting a base credit of 30 cents on the dollar for every dollar that that acquisition costs. So if you invest in solar panels, they cost $100, you're getting $30 in tax credits at a base level. If more than 55% of the asset is sourced from domestic content, they give you an extra 10% on that. So you spend $100 on a solar panel, you get $40 back on a tax credit. And then you get to depreciate the panel at a certain level. Last year, with the one big beautiful bill, recognizing that solar, broadly speaking, photovoltaic solar, which is the solar panels and wind, did very little to actually solve our energy problem because they only produce energy intermittently. You still need significant base load on the grid in order to deliver power when it's necessary. The shift in the in the code through the one big beautiful bill was to shift the attention towards storage, renewable energy storage. And so the the projects that we're working on, we have an exclusive arrangement with the developer of these projects, is a thermal heat capture and storage. So what they are doing instead of photovoltaic, where you have that photon reaction with the panel, they're taking heat from the sun, which is actually a broader spectrum of the light that is coming from the sun. It's not just the photon side of it, not the visible light side of it, but the whole energy of the sun is being captured through reflective panels that direct that heat into a exchange um medium. So we we superheat this hydraulic liquid and then it's stored in another um phase change material or storage material that is very efficient in that in that heat transfer and heat storage. And then that heat is ultimately converted back into electricity or energy through electricity, through effectively what is a what you might like into a steam turbine. We we hurt we super um heat this fluid, it becomes evaporative, it runs through a turbine, produces electricity, and then condenses and goes back through the cycle over and over again with no emissions whatsoever from this whole system. So it's it's highly efficient, probably seven to twelve times more efficient than photovoltaic, and it produces power 24-7 because of the storage component. So it's it's really remarkable technology. But what that means now is that if we are uh arranging these, the investment in these, which is what we do as advisors, we bring uh clients into these projects, they're investing. Let's use a million-dollar example, they invest uh $350,000 into this project as a down payment. They buy a million dollars of the project, they get $400,000 of credits, and their depreciable basis is $800,000. And so they get to write that $800,000 off. And then they effectively own that project, and the project retires the leverage component of that, and then they flip out of it and go their merry way, but but harvest that tax efficiency right out of the gates.

SPEAKER_00 6:43

And there's also uh, and forgive me, I'm sure I'm I'm gonna misspeak since we are not tax experts. We'd like to stress that, and obviously uh Nathan is, so nothing we're saying is tax advice, but there's also a uh uh a refund potential aspect to the program, if I'm not mistaken. Cash flow is obviously something we're trying to cope with in terms of from a bottom line perspective.

SPEAKER_01 7:07

Yeah, absolutely. So this can be, as you're noting, viewed as a a year-by-year planning strategy where we can plan to to affect taxes within a given year. But and you gotta love how these bills are named. We have the one big beautiful bill on the one hand, and we have the inflation reduction act, which did anything but that in the on the other hand. But back when you go back to the 2022 and the inflation reduction act, if that doesn't give you nightmares, um later on they actually added in a provision. That's where these credits actually originated was the Inflation Reduction Act. They've just been modified through the one big beautiful bill. But later on, they added in a provision that said you can take any excess credits, so any credits that cannot be used in the current year, you can carry back to the three prior years and amend your return, apply those credits as a form of payment, and request a refund. You have to go to the oldest year first and then you kind of work your way back. So, for example, in the current year, if someone found themselves or we could design a strategy that would cancel out the current year tax, i.e., depreciation offsets the income, and whatever isn't offset by depreciation is absorbed in the available tax credits. And if we still end up with tax credits after that, we can then go back to 2023 and amend 2023's return and claim a refund from 2023.

SPEAKER_00 8:32

Yeah, great. So one of the one of the things we talked about also was uh business owners doing the quarterly estimated payments. And I know we've had a couple of conversations, and so this is basically a way of most of those are usually overpayments. I I think I and I'll defer to you from that standpoint, but so this is a way of basically telling the business owner, hey, maybe you don't make that quarterly estimated payment because we factored in the numbers, and then that money now gets freed up for other things. So yes, speak to that if you want a little bit.

SPEAKER_01 9:06

Yeah, yeah. So what happens most of the time is folks come to us in October and they say, gosh, I am going to pay a ton of tax. They've already made those deposits, like you mentioned, because they have to estimate them throughout the year. And they say, What can you do for us to help us mitigate some of this tax liability? And we say, Well, we can have you invest in a renewable energy project. They say, That'd be great, but I don't have the cash anymore because I've sent it off to the government. They're holding on to my cash for me. Anything else you can do? And then then it gets, you know, we give them a tissue and they cry a little bit. But but that's why right now is the most important time to get involved in this type of planning because we can anticipate your taxable income. You know, most businesses have some estimation, they budget for the year, they project out their revenue, some do it for three or five years, which is great. So we know what you're gonna likely be making gross net taxable income. That's how we're coming up with those estimates in the first place. But rather than put it into the government's pocket as a uh interest-free advance on what becomes your tax investment, we can make that set that aside, invest it in a renewable energy project, knowing that that renewable energy project will at least cover the tax exposure that that tax would otherwise be set aside for. So, for example, if you're putting, you know, $100,000 in uh quarterly payments, presuming uh uh, I don't know, just make it easy. So let's assume that million that $100,000 is on um on $500,000 of income or something, then we would take that $100,000 and set it aside knowing that we're gonna invest in a project that is going to offset at least that $500,000 of income. And it's usually we would only need on the on a scale, uh, if you're putting $100,000 in, we'd probably need $60,000 of that to put into a project to offset the $500,000 of income. But we we do the math, we figure it out, and so you're usually keeping, you know, 40 to 50% of what you'd otherwise be sending to the government. And then you're able to redeploy that into your business. You know, that's the cash flow piece of this, enhancing your cash flow, keeping the money, putting it to use, making more money from it. And if we if we're doing projects earlier in the year or just saving the money to a project later in the year, at least we've got the money in hand to do the project.

SPEAKER_02 11:40

So, Nathan, I think it's important for our listeners to understand when we talk about healthcare, we we talk about healthcare from a fiduciary perspective. And these are the things you need to do as a prudent, you know, prudent uh fiduciary. But we also talk about the bottom line, right? So if we can help improve your healthcare spend, reduce it for your people and your company, we're improving their cash flow. We're trying to do the same thing, I think. Correct me if I'm wrong. We're trying to send less money to the health care carriers and providers, and you're trying to spent send less money to the federal government and improve the cash flow for the business, right? Right. Is that fair?

SPEAKER_01 12:18

Yeah, that's 100% correct. And doing it in a way where we're we're doing it within the the parameters that the code gives us to do that. Depreciation and credits, they're in the code. It's not like we're making something up, we're just structuring it in a way like you guys are, that we're taking advantage of it so that it leaves excess cash flow at the end for the business to put to use.

SPEAKER_02 12:40

What I like about this, you know, uh, and and we're gonna talk about do we think business owners fully grasp this because it's highly complex? I'm trying to dumb it down in that we're just trying to send less money to the healthcare providers and carriers. You're trying to send less money to the federal government. Um, and of course, there's a lot of machinations there, right? There's a lot of moving parts. But what I like about this program, in addition to what we do at Synchronomics, is that you can do this any time of year, right? Because you can go forward and you can go backwards uh what a couple of what two to three years to recapture some of the uh so if your business isn't doing well today for some reason, whether it's tariffs or some other reason, right? And the economy might be soft in your particular case. When it was good the last couple of years, you can use these tax credits and depreciation to go back. Is that is that fair?

SPEAKER_01 13:35

That's absolutely correct. Yeah, we can we can customize these and design these because you're you're not buying um, as as I go back to my original example, you're not buying solar panels or batteries or anything like that. You're buying into a larger project that is effectively a power generation plant. And so we can we can customize it to whatever the needs of of a client is such that we crush the current year, do whatever we need to crush the current year's exposure and leave those credits available to go back in time.

SPEAKER_02 14:05

I like it in that I I call that two shades of green, right? It's obviously solar if you're into that. Um it's renewable energy, but it's also putting money in into the business owner's pocket, and then they can decide what to do with that money, right? We we have a very big um penchant for the average American worker. We'd love to see them plow it back into their what we think is their chief asset, which is their people, but they can decide what to do because cash flow and enterprise value of the business should be better, uh, especially when you rank stack what we're doing with what what you're doing as well.

SPEAKER_01 14:40

Yeah. And this this type of strategy can work well for both those who have passed-through type of businesses and corporate uh, you know, C Corp concerns as well, where the tax rates are just up at the corporate level. So um so it's it's almost a universal solution for tax efficiency.

SPEAKER_00 15:00

And I think this is the part we're trying to get the the folks to understand is uh tax, whatever we're calling it, equity, mitigation, planning, whatever term you want to put on it, in essence, is an employee benefit if you view it in a proactive manner. Like you mentioned, people coming, it's October 15th, and oh, what do I do? And yes, we know CPAs are now, you know, full into tax season, and it's hard to have a conversation, but it's better to force the hard conversation now where you have more flexibility than trying to ram something in at the end of the year, trying to, you know, be a little more where you're more reactive than you are proactive, yes?

SPEAKER_01 15:46

Yeah, and and you know, you make a good point there. The CPAs, they have their busy seasons as they call it. But either way, they're still advising you as to when to put your tax deposits in. And if all the conversation with them is right now is, hey, uh, Mr. and Mrs. CPA, we're going to engage in this other renewable energy transaction that will generate loss and credits that will displace our otherwise required deposit obligations, let's just not do it. And as long as you get the CPA comfortable that you're not going to find yourself in a penalty situation or, you know, in a cash crunch later because you know what you're doing, then then they don't need to really be involved other than to say, okay, I get what you're doing. Set your money aside, do that transaction, and and we'll we'll shake out the numbers at the end of the year. Because either way, none of this becomes final until 1231, right? You don't your last dollar of profit until 1231. And so there's no way to get it exact, but we can we can do a very good job once we have good estimates as to what taxable income is going to be to know that we don't need those early deposits.

SPEAKER_00 16:53

But and to your point, though, and this is one of the things we want to stress, is it's all within the code. So this is what this is not something that's been invented. This is not people talk about, oh, I don't want to go in, this is not a gray area. This is hey, this is how it's designed, and here is how you use it to your benefit in terms of how it's structured. So again, Nathan, there's nothing, there's no there's nothing that goes to where someone's gonna be like, wait a second, are we pushing a boundary somewhere? Correct.

SPEAKER_01 17:21

Yeah, no, CPAs are already doing half of this. Uh when when your CPA comes to you and says, Well, here's a way to increase your tax efficiency, buy some more equipment, buy a 6,000-pound vehicle.

SPEAKER_02 17:32

Right. Get a Range Rover, get a Range Rover, yeah.

SPEAKER_01 17:35

And and and how useful is that, right? So, um, well, I don't know, that might be useful.

SPEAKER_02 17:41

I mean, you don't want 10 of them. You don't want 10 of them.

SPEAKER_01 17:44

But uh, what you're doing is buying depreciable assets here, and then the credits just because of the nature of the asset you're dealing with, and then we work in some leverage, and which is usually a part of any equipment purchase and um active participation if necessary, meaning that you actually participate in this renewable energy business so that you can use it to offset active income. But aside from those nuances, these are things that CPAs are functionally already recommending, they not in this form.

SPEAKER_02 18:14

Yeah. So let me let me let me replay this for you, right? So Inflation Reduction Act, it survives the big beautiful bill, right?

SPEAKER_01 18:24

Uh and actually maybe gained more traction with support, because because you are correct, the other forms of renewable energy that are in a mid intermittent, yeah, are no longer going to survive going forward. So sorry, sorry to interrupt you. So replay.

SPEAKER_02 18:39

No, no, you're good. So rather than buy 10 Range Rovers and see which ones are lemons versus which ones aren't, you could do this. Um and what is the time frame? Or do we have a window of opportunity? Do these credits so I know with the power grid, you can't turn on the news right now without hearing about how AI is going to take over the world, and we need to build so much base load power in the United States to support AI for the foreseeable future until Elon Musk builds something in space, right? For the foreseeable future, it's just gonna be you know very voracious from an energy standpoint. Is there a window of opportunity here for the business owner to buy these through 2030, 2032, or is that closing?

SPEAKER_01 19:27

33 is the current horizon, yes. And we're hoping to beat Elon Musk to the punch and actually solve the the data center energy crisis before you go. So you're you're absolutely right, demand for power is voracious, and and that is who are the power purchase off takers. Broadly speaking, we are working with data centers as our ultimate end users of the power. There are there are creative ways that corporations can can fund these and take advantage of their own power as well. So if that was, you know, we're working with some data centers now where they will both be the investor and the off taker. But otherwise, you're exactly right. Energy is the new gold, and uh we to be to be supplying that to the system.

SPEAKER_00 20:16

To come full circle, the idea from uh from a clack cash flow perspective, we hear we talk to a lot of business owners and hey, I can't afford that better health insurance plan, I can't afford the better match. These are different ways to free up cash flow to again, as Jamie said, reinvest back into your employees. Um, Nathan, appreciate the the the time you took this morning. Uh, if anyone would like to get a hold of Nathan again, please feel free to reach out. We'll make sure we make the connection. Last question, Nathan, before we close. The size of the firm is I don't want to say irrelevant, but there are opportunities for small business owners in this regard. So you don't have to have a $10 million tax problem to take advantage. Is that correct?

SPEAKER_01 21:03

No, we'll we usually view the threshold for being relevant and about a million dollars of taxable income. Um, and then if you're working over a couple of years, obviously a million dollars of taxable income over three years is three million dollars of taxable income. So so there's ways to make this relevant to even what we might consider small mid-market businesses. In fact, it's very relevant to those because and and James, you mentioned it maybe one way you called it a tax problem.

SPEAKER_02 21:33

I would is it I you know, you're an accountant, right, Nathan. This is more if you're paying taxes at a certain level and you find it distasteful and you already have five Range Rovers in your garage. This might be a better move for you from a tax savings standpoint.

SPEAKER_01 21:51

Uh absolutely, without a doubt.

SPEAKER_00 21:54

Let's not discount Nathan said, you know, the the the impact we're making from a future perspective because the energy question. Is not going away. So the ability to control that as well. Well, thank you, Nathan, for joining us, and thank you to our listeners. If you want to find out more information, again, we'll have the link to Nathan's firm uh attached to the episode. We're going to dig into more legal questions that are facing business owners throughout the rest of the year, including again some of the lawsuits that we've already hit on and how it impacts uh benefit packages in upcoming episodes. So be sure to subscribe when you're listening now. Jamie, Nathan, again, thank you. And we'll see everyone in the next episode.

SPEAKER_02 22:32

Yeah, see you next time. Thanks, Nathan. Thank you.