Strength in Numbers with Marcus Crigler

Episode 47: The IRS Has Been Stealing From You - Here's How to Make Them Pay It Back

• Marcus Crigler • Episode 47

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0:00 | 45:23

The tax code isn’t designed to punish investors; it is designed to reward those who understand how to use it effectively.

In this episode of the Strength in Numbers podcast, Marcus Crigler and Kaden Hackney break down a concept most entrepreneurs completely miss when it comes to taxes and wealth building.

Listen as Marcus gives a preview of a presentation he’s preparing for a national real estate conference, and the four financial stages every entrepreneur goes through. He also explains why poor bookkeeping creates the “chaos tax,” why reserves matter more than revenue when it comes to expenses, and how the right entity structure can completely change your tax strategy.

Enjoy the show!

You’ll Learn How To:

  • Play the long-term tax game
  • Avoid the “chaos tax” that costs entrepreneurs thousands
  • Build proper personal and business reserves
  • Structure your business so tax strategy works

What You’ll Learn in This Episode:

(02:35) The real purpose behind tax deferral strategies

(03:38) Preview of Marcus’s upcoming presentation

(05:01) The common problem entrepreneurs face when trying to grow wealth

(07:07) The seven rules of the tax game

(08:16) Why the tax game only matters if you’re playing the wealth game

(08:55) Different stages of the wealth game and different rules of the game

(11:16) The danger of comparing your journey to other investors

(12:02) Rule #1: Entrepreneurs win the tax game

(13:20) Rule #2: Avoid the “chaos tax.”

(14:53) Why don’t many investors realize how much money they actually made

(16:03) You can't do strategy without clarity

(19:05) The secure stage and why most entrepreneurs try to skip it

(19:26) Building business reserves before expanding

(20:38) Bad debt must eventually be eliminated

(22:21) Rule #3: Structure is strategy

(26:27) Rule #4: Taking advantage of the entrepreneur’s tax gifts

(27:06) Examples of simple tax strategies most people overlook

(29:06) Partial dispositions explained

(30:05) Moving from the secure stage into the expansion stage

(30:48) Expenses should grow with reserves, not just revenue

(31:24) The rule of three months of reserves before making new hires

(34:30) Introducing the concept of the “tax ladder.”

(38:32) Marginal tax brackets matter more than most people realize

(39:39) Rule #6: Understanding and using Real Estate Professional (REP) status

(40:32) What is a tax shelter?

(41:38) Rule #7: Tax savings should fund wealth, not lifestyle

Who This Episode Is For:

  • Real estate entrepreneurs who want a better tax strategy
  • Business owners who are trying to scale
  • Investors who want to build long-term wealth
  • Entrepreneurs who want to understand how the tax system works

Why You Should Listen:

In this episode, Marcus and Kaden explain the framework behind that strategy and the financial stages every serious entrepreneur has to move through to win the long game.


Connect with Marcus Crigler:

SPEAKER_02

You've got to increase your expenses with your reserves. And I want you to be aware of that concept. Increase your expenses with your reserves, not with your revenue. And so if your revenue is going up, but your reserves are not going up, that's telling me that your expenses are probably getting out of hand.

SPEAKER_00

Welcome to Strength in Numbers, the podcast for real estate entrepreneurs who are tired of being broke and not having control of their finances. If you're ready to finally take control of your money, slash your taxes, and start building real wealth, you're in the right place. And now here's your host, Marcus Krigler.

SPEAKER_02

What is going on, everybody? Welcome to Wednesday Hump Day. Getting over the hump of the week. Hope everybody's having a good week. Marcus Krigler here. We're coming to you with content, information that we think you need to know. I got my partner with me, Caden Hackney. We are both co-owners in Beck, CFO and CPA, an accounting firm that specializes in helping people save money, make money, and build real wealth in real estate. We do that with tons of real estate entrepreneurs across the country. So if you're looking for any help with those kind of things, uh let us know. We're happy to chat with you about that. You know what's another interesting little tax strategy that came up this on a podcast? I didn't see this one coming up on a podcast this week, but I was doing a podcast with David Shaw. You guys should listen to it. It should be coming out in the next week or so. It's really, really good. He's a lender, he's a client of ours, and he has an income fund, does a lot of cool stuff, very experienced guy, and has had a lot of success in real estate. And you know, he's working through a deferred sales trust right now, a DST, and utilizing that in his income planning. And so uh it was funny to get through that on the podcast and him talk about his experience there and and how he's able to kind of gone from shifting his wealth strategy to where now he needs to you know have some liquidity. He doesn't necessarily want the work of the real estate, but he still wants the control of or somewhat control of the the capital. He doesn't necessarily need the capital, but the control of it he would like to maintain, right? So it's just some interesting uh you're seeing a lot of interesting things around here, buddy, and a lot of interesting uh opportunities to save people money in different ways and defer money in different ways and build wealth. Here's the thing about deferring taxes is the whole goal about deferring taxes is that the money that you make by deferring it, you are able to pay your taxes with the money you make. Like that's the whole principle behind it. That's like step number one. And so when you can use take your deferral, say, okay, I'm not gonna pay taxes now, but I know I'm gonna pay it later, and I'm gonna take those that investment, I'm gonna invest it and say, okay, well, guess what? My money that I didn't get taxed on is now gonna be giving me returns to pay for the taxes at that later date, right? And there's just so many different ways that different strategies that are getting put together and compounded to do more of that. And I just think it's so exciting of all the things that we're able to do.

SPEAKER_01

Yeah, I mean, it's kind of interesting. I just have like a little connection, but it's almost like the same concept is when you can go and take out a loan using collateral, right? But then you're still getting appreciation on the collateral, too. That's kind of what like ultimately what tax savings really are. It's almost like you're like taking out a loan on some collateral.

SPEAKER_02

Well, listen, uh, today I wanted to kind of give a little sneak peek into a presentation, one of two presentations that I'm gonna do for national land reality. Big national land brokerage, they probably are maybe top five land brokerages in the country as far as the amount of land that they sell, thousands and thousands of acres a month of different land and and different partials of land, I should say. And their entire group's having their annual summit in Louisville next Monday and Tuesday. And so I'm going to be down there speaking at that conference both Monday and Tuesday. And I thought I'd give a little preview on the first presentation, which is gonna be called the tax game pay less as you make more. Pay less as you make more. So I think it's got a decent title to it, I think. I'm not gonna pat my own back. I had some help with the title, but pay less as you make more, I think is something that we all strive to do. But we are we also all kind of understand that that's the way the game works in the US, right? It's kind of the secret, not so secret game, right? And we all kind of know it and we don't all know how to play it. And the longer we're in the game and the more we focus on the game, we kind of start to understand it, but that's just the reality of it. I don't know what's been your experience with that as you've seen people growing their wealth and their income.

SPEAKER_01

Well, I think a lot of people come to us with a problem. The problem is they aren't growing their wealth exactly how they want to be growing their wealth, and their income's growing and they're paying way more taxes. That's usually where people find us. Yeah. So it's so cool to see the transformation where you know we talk about, hey, what's that extra$200,000 of tax savings gonna do for you as far as building your wealth? And like, what if we did that for 10 years? You know, we kept that much more money in your pocket. What kind of compounding effects is that gonna have in your life? And it's it's completely life-changing results for every single client that we're working with that's executing and doing this at a high level.

SPEAKER_02

Yeah, I mean, I completely agree. I completely agree. It's super exciting for me because I always love getting to go to these conferences and telling about the wins that we're having. And, you know, I'll be honest with you, I'm other than being a moral support and a big slap on the back, I'm kind of that's all I am, right? And so when it comes to a lot of these tax strategies, so maybe I get to question you a little bit, but you know, it's very rarely anymore that you know I'm having a whole lot of say into what what all the tax strategies are within the organization and how they're getting applied because you're doing such a good job with it. But I do get to talk about it a lot, which is a lot of fun, right? Makes me look good out there on the road when I'm out there, so I appreciate that. There you go. You're welcome. That's what I live for, right? Half my job is just making you look great. Listen, there's a whole team of people that do that, and I'll tell you, I look good for them because of them, but man, it's a lot of work. It's a lot of work. I wouldn't say I look great, that's for sure. Uh, they're doing their best. That's right. All right, so let's let's go into this, and I'm gonna do this in a non-formal way. I'm not gonna actually do the full presentation because, well, I don't have it the way I want to do the full presentation yet. And so I'm just gonna choose not to. How about how about that is my story, and I'm sticking to it. So the first thing that we're gonna go into is that there's gonna be seven rules of the tax game. And once you understand the seven rules and how to apply the seven rules, you can ultimately win the tax game long term, right? And I think there's a lot of I don't know, false narratives out there. There's a lot of things that you hear as far as you should be doing everything all at the same time and getting your tax bill down to zero and all this other stuff. It all kind of looks sexy on paper, but the reality is if you just follow these seven rules that we're gonna outline today and in this presentation, we think you're gonna be in a really, really good tax spot, right? And long term, we want you to be in a spot where we're gonna talk about this later in the presentation, but where you're in the sub 20% tax bracket effective tax rate, and if you stay down there, your wealth acceleration grows massively. And certainly there's ways to get your tax down to zero, but sometimes it just might not make sense.

SPEAKER_01

A lot of the times it actually doesn't make sense. True. Maybe that's two cents there.

SPEAKER_02

Maybe a better, maybe a better point, even. So what we know about the tax game is the tax game doesn't matter if you if you're not in the wealth game, right? You've got to drive income, you gotta drive more wealth so that you can have an opportunity to pay more taxes. The one thing that we know about the tax code is it doesn't tax people that don't make money, that's the reality. And if you make a lot of money, there's a lot of opportunity to make it look like you didn't make a lot of money. Okay. It's the middle that usually gets hammered the most with taxes. It's just this is how the country works. You can hate it, you can love it, you can agree, you can disagree. That's the facts. So that's just where we're at. And so what we know is that when you're at different stages of the wealth game, you have different rules of the game you play. And this is what we're going to talk about. So we've talked about this on this call, but I'm going to refresh it. And so we've got the hustle stage, the secure stage, the expand stage, and then ultimately the invest stage. And that's that is the four stages that you go through in order to generate generational wealth, legacy wealth, financial freedom, whatever the buzzword is that you're trying to get to at the end of the line, ultimately it's getting through that invest stage. And so if you understand these seven rules and how they intertwine with the wealth game, now you're going to win long term, right? And so that's what we're going to be talking about on the main stage for this group. And, you know, we got to go in the hustle stage. Most of you guys know this, but if you're just tuning in for the first time, the hustle stage is understanding your repeatable profit model, making more than you spend, saving three times personal expenses, and then get out of this spot, right? Hustle is a season, it's not a lifestyle. That's what Tom Kroll says. It's something I truly believe in. You hustle for a period of time and then you get out, right? And we see so many times where if you hustle and then you try and really grow fast, and then you end up back in the hustle phase. And you know, about once a decade you end up back in that hustle phase. And, you know, Caden, you can probably agree with me there. It's it's so many times that we see these good business owners, they're great business owners, but because they grew too fast or they went beyond their means, or honestly, what they actually wanted, really, it just kind of happened, it spiraled out of control. They ended up back having to restart over into the hustle phase, and they lost a decade.

SPEAKER_01

Yeah. And I I think the other thing is that keeping up with the Joneses effect is everybody is hearing like whatever buzzwords going around, oh, scale, scale, scale, or oh, you gotta be doing this, you gotta be doing this. Everybody kind of gets sucked into that and and thinking that that's what they gotta be doing because everybody else is doing it. And I I do think that that really sets a lot of people back. Comparison is good for competition and and like giving you that motivation to you know move forward and maybe some confidence too a little bit, but the other thing is comparison can really screw you up if you're comparing yourself to uh what other people are doing, man. Like, you know, we've got a client who they have like fifty million dollars in real estate and they started buying like you know, 2016 when they got serious. Well, if you got started in 2016, you know, 2016 was a great time to get started. If you're getting started in like 2022, and you're saying, like, oh, I'm gonna do the exact same thing that that guy did back in 2016, it's just uh it's not gonna work. You're gonna end up in a whole different situation than they were because there's a different strategy to a different season, and your strengths are not the same as everyone else's. You gotta play you your strengths and your cards. Completely agree. Completely agree.

SPEAKER_02

So I think it's important that as you get into this hustle stage, you understand that first off, the biggest rule and the first rule of the tax game is that entrepreneurs win the game, right? And I'll even go further in saying that real entrepreneurs win the game. If you're out there gunslinging, if you're just trying to do whatever you can to make a buck and you're in every single industry and you're following the dollar around, you're not a real entrepreneur. You're not gonna be a real business owner. And what you're gonna do is you're gonna struggle to create a long-term strategy because every time you move, the tax strategy moves too, right? And so you've got to kind of get to a spot where you're a real entrepreneur, you're focused in on the real things that matter as an entrepreneur, and you're not just out there gunslinging, right? And so the hustle stage is about understanding that you've got to become a true business owner. And the tax side of that, the number one rule here is that being a real entrepreneur is what's going to allow you all of the tax benefits that you want and deserve, quite honestly, and is allowed for you to have in the tax code as an entrepreneur. So run your business like a business, have the things that business owners have, right? Keep track of the things that you're supposed to keep track of, which goes into rule number two, which is avoid the chaos tax. So many of the times people come to us, and you came up with this, you came up with this terminology. It's an absolute brilliant terminology. Avoid the chaos tax. So many times you start in this business or start any business, and again, it goes back to that gunslinger mentality of, hey, I just need to chase revenue, but I'm not gonna keep my records, I'm not gonna keep any books, I'm not going to, you know, whatever my bank account says is how much I'm gonna live off of. I'm not gonna separate my bank accounts between my business and my personal, right? All those things turn into real risk for you down the road when all of a sudden that gunslinging turns into true business and true income. And now you get to that year, I get it to the end of the year. How many times have we seen it? We get to the end of the year, and it's like, oh, well, I made 300 grand last year. I had no idea. I had no idea I made 300 grand.

SPEAKER_01

One thing that's like tough in our industry, which you just gotta learn to love it, right? Is especially, you know, depending on who you're working with, you'll have somebody who's new and they'll have made like$500,000, and they're like, I made$30,000 last year, and now I make$500,000. There's no way I did that. I don't have any money. I hear that all the time. I don't have any money. What are you talking about? I made all this. Well, the first thing I do, because most of these guys are flipping, right? Like they're flipping houses or something like that. I'm like, hey, let's go look at your inventory. Oh, this is where all your money's at. Look, you got you know$1.6 million dollars of inventory. You see how much your inventory increased? That's where all your money's at. Yeah, and they're like, what are you talking about? They don't have any idea what's going on. And that's only the beginning. The chaos tax is like three different layers. So it's one, you're broke when you need money. Two, banks won't talk to you because if you don't have the records to prove that you're actually good at what you do, like they're not gonna talk to you. Even when you are good at what you do, it's hard enough to deal with traditional lending for banks when you're an entrepreneur. And then yeah, the third thing, like you don't know if you're paying the right amount of taxes or not. And we've had we've had plenty of people, like they go and do a cleanup at our firm. So we have an accountant that goes and like really deep dives, cleans everything up. Holy cow, it's like an uh you know,$200,000 difference lower because they they misclassified loan proceeds or something silly like that. And then on top of that, because the numbers are clean, we're actually able to go and do strategy to help them reduce it. You can't do strategy without clarity because then we don't know if what we're doing is good or not. You know what I mean?

SPEAKER_02

No, you know what? You bring up a great point because the chaos tax can go both ways, right? You could go in and you can find out you owe a bunch of money that you didn't know you owed, or you could come the other direction and not pay in enough and find out, hey, knock, knock, knock, IRS is at your door and they want to check, right? And we don't want that to happen either. And so I think it's important, especially, and I don't care really, because the hustle phase, no matter what, if you don't have your books and records, if you don't have an accurate balance sheet, an accurate PL, if you don't understand where your cash is at and how it's moving, you're still in the hustle stage. You've got to get that a good understanding of that, no matter how much money you're making, because until you get a good understanding of that, you cannot grow on the foundation long term of having a successful business. And it's kind of going back to that concept of yes, you could go so far, but you're gonna end up back on the hustle wheel or the hamster wheel is what we end up calling it, right? And people wonder why it's the hamster wheel. Well, because it just goes in a circle. You go from this spot and then back to hustle, this spot back to hustle, and and that's really what you're seeing.

SPEAKER_01

Yeah, and this this whole journey is not just money, right? Like totally when we're when we're going and charting out that map, talking about hustle, secure, expand, invest. I mean, the money is just like almost the byproduct of it. It's who you're becoming as a an individual, as a business owner. You're having to go and and expand yourself. So, like when you're hustling, it can't just be money that's hustling. It's got to be you. You need to be reading books. I see that fat stack of books behind Marcus right there. You need to go and get a book list from Marcus and read some books, get better at managing things, right? Like, you don't want to be like the guys that win the lottery that go broke in five years and are in bigger debt than they were before they won the lottery. It's because they don't learn how to manage the stuff they've been handed. Like, Marcus, what was that you said you know, about our business? It's the biggest it's ever been, the smallest it's ever it'll ever be you know from now on, right? Like we're constantly having to expand ourselves and keep up with the growth so that we don't become bad stewards of it.

SPEAKER_02

That's right. No, that's that's exactly right. And yeah, I actually made a post uh, I don't know, a month or two ago as I was cleaning out my office and had all those books kind of off the shelf and cleaning up some things. And I posted, I think it was like nine or ten books that I thought really defined who uh I became as an accountant. And there were some finance books in there, there were some sales and marketing books in there. And so, you know, if you haven't seen that post, you go to my Facebook page, check it out. I might give you some inspiration on uh some books to read. Next phase, right? We go to the secure phase. This is the phase that everybody screws up. This is the phase that everybody it wants to skip and wants to miss out on. But I will tell you, this is the spot that's the most important. And so, number one, you've got to get your business reserves up to three times expenses, right? And so hustle stage, your personal reserves got to get up to three times expenses. We take care of ourselves first as a business owner. It's just like when you uh you get on the plane and they say, hey, you got to put your oxygen mask on first before you help your children. Yes, it's the same thing here. We understand that if you are not taken care of as an individual at home and you feel broke at home, your business is not going to operate correctly. You're not gonna make good decisions. We know good decisions, good results. That's how it works. We got to get you into a good decision-making framework. Having the right reserves does that. Three times business reserves. If you're somebody that flips a lot of properties, this is short-term debt, not long-term debt, but somebody that flips a lot of properties and has short-term debt. 10% of reserves is what I want you to have on top of that. On top of that. So if you've got$1.6 million worth of debt, you need another$160,000 in reserves on top of your three times business expenses. And what that's gonna allow you to do is handle your construction management. It's gonna allow you to handle your, you know, any potential risk within your portfolio. And honestly, the smaller you are, the higher that percentage could potentially be. So just be aware of that. But 10% is a good number. Pay off bad debt. This is my philosophy. Anything that doesn't pay itself off is bad debt, right? And I even include my mortgage in that. Like it's not good debt. Now, it's not the first debt I'm gonna pay off. And I'm not necessarily saying you can't expand without paying off that debt, but everything other than your mortgage, um, and eventually that mortgage needs to be on the list, needs to be paid off. If it's not paying itself off, it's bad debt. I don't care if it's 3%. At some point, it needs to be paid off. So that's just my belief there. And then ultimately, the secure phase, you don't leave that until your business is auto-paying you every month. And I I would like you to get to 20 grand a month. Now, is it gonna be 20 grand a month before you exit the secure phase? I sure would like that again, because I think that's where I want you to be at from a personal standpoint. Because if I talk to 10 millionaires and I say, hey, what is in the monthly nut that you think everybody needs to live off of? They're gonna tell me somewhere between 15 and$25,000 per month. That's what they're gonna tell me. And if you go listen to my podcast, I ask that question quite a bit, and you'll hear that number come up consistently$20,000 a month. So that's the number we think is the right goal. That could increase with inflation. I don't really take inflation into that. Some places may need a little bit more, some places may need a less, but that's the goal, right? And when you set yourself up, you got your personal reserves taking care of you. Of you got your business reserves taken care of, and now you're paying yourself enough to cover all of your personal expenses and a little extra to make sure that life is good. Perfect. Now we've got the ability to go to this next stage, which is going to be the expansion stage. But first, you got to realize what are you going to need to focus on tax-wise at this level, right? So, rule number three is structure is strategy. And it's funny, Caden, I was talking with who was I talking with that we were we were talking about this today. Uh, it doesn't matter, I won't I won't say their name, but they were big business, probably$15 million gross profit type of business. And they had gotten there with just this terrible entity structure, and it's got them to a spot where they can't grow beyond the$15 million mark. And it's just because they've cobbled together this entity structure for the net last 20 years, and now they're feeling the pain of it, right? And so I know this is one of the big things that you harp on whenever we do tax strategy, is like, all right, nothing else matters. Entity structure first. What's the entity structure? How is everything moving around? Why is that such the key of everything that we do?

SPEAKER_01

Yeah, I mean, if if you're not locking in the right entity structure, all the rest of the stuff doesn't matter because, like, this is literally your foundation. If you don't have this right, almost nothing else is gonna you know click in in line either. So I'm sitting here trying to think of who you might be talking about, and I have ideas, but you don't know them.

SPEAKER_02

So all these solved it for you.

SPEAKER_01

You won't even uh good. Well, I don't know them. Well, here's here's the deal. So there's a whole bunch of weird little nuancey stuff about entity structure, and there's a whole lot of rules that I don't care how much you go deep diving on the internet, like there's some crazy complexity with entity structure. You need someone to help you out with this. Like, I'm just gonna say that you need someone to help you out with this. Don't go and hear someone say, Oh, S-corp, someone say oh, partnership, someone say C Corp. You don't have any idea. Like, there's you know, thousands of pages in the tax code that talk about all these different entities, and there's a bunch of weird little rules, and there's exceptions to rules and stuff. The whole point, though, is if you're doing this right, your entity structure is going to support your losses to be taken and your profits to be minimally taxed. That's that's the benefit. Or here's the other from a tax perspective. Yeah, from a tax perspective. The other thing is sometimes it makes sense to pay the dang tax today and have a big, big future opportunity to pay no taxes. And there's a whole bunch that goes into that and making sure that you've done things correctly to get there. So, yeah, this is a hundred percent. This is the best place to start with strategy, and we and it's the leaky bucket, too, right?

SPEAKER_02

Like this is where a lot of people get beat because they get losses that get stuck in places, or they get you know, they don't have basis to take certain things, or you know, they got you know all these kind of issues.

SPEAKER_01

Let's give someone a freebie too. If you've got rental real estate inside of an S Corp, yeah, that's a dirty little hey, is this QR code? This QR code is the one that takes them to our little funnel, right?

SPEAKER_02

Yeah, use this QR code on there.

SPEAKER_01

Yeah, use this QR code. If I'm talking to you right now, if you've got rentals in an S Corp, you need to use that QR code and talk to us a little bit.

SPEAKER_02

Yeah, well, and there's a book there. Read the book, it's good. Read the book, good content there. So use that QR code, it's live, it's beyond an email wall, so you have to share in your email with us. But book will be fantastic, and I'm sure we'll probably be promoting that out to you guys uh soon, anyways. But yeah, there's a QR code on the bottom of each one of these pages, and and there it's gonna take you to first off, if you want to schedule with us and you know learn a little bit more about what we do, certainly can do that. But like I said, that book that is a free gift from us that we're doing for the land summit. We'll do it for anybody that's listening to this podcast as well, or this uh live stream as well. Just use that QR code, get the book, and the book talks about all of the strategies in more detail that we're talking about. And you're gonna want it because of these strategies, especially right here, because this is where it starts. You know, rule number four is where it really starts to get into the guts of what's the benefit of being an entrepreneur. And rule number four is take the entrepreneur's tax gifts, right? You got to understand what the gifts are. But if you look at what's out there for you, you're talking about wage planning, you're talking about the Augusta rule, you're talking about the home office deduction. And can you use the Augusta rule and the home office deduction? How do you shift income around? What's a family office? Can I use a family office? Am I too big for a family office, too small for a family office? What does that mean? How do I use an accountable plan? What even is an accountable plan? I've heard of it, but does it make sense? QBI maximization. If you're listening to this, did you know that you should be getting a 20% discount on your profits if you're in a partnership or an S Corp? Do you understand that? Or in an LLC sole proprietorship for that matter, right? And if you make over like$300,000,$400,000 somewhere in that area, don't quote me on it. But if you make over that amount of money, you start disqualifying yourself from it. But there's ways to solve for that, right? Yeah. And this is just simple stuff. Simple stuff, right? But you've got to understand that it's out there. First off, you have to have understanding that it's out there. So this is why you got to understand the entrepreneurs' tax gifts. You got to know what they are and what they're out there for. And you have to know that as a taxpayer. I understand you have tax strategists, and you should have somebody that is out there telling you and informing you on what to do, but you should never sign up to do anything that you don't have an understanding of. I don't care if it's buying a house. I don't care if it's, you know, whatever it is, you should not sign up for it. So, anyways, understand these things. Depreciation planning, section 179. Should you be accrual versus cash? Bunch expenses, installment sales. Oh, it keeps going on. Partial dispositions, 1031 exchanges, 263A adjustments. You're kidding me. And on top of that, charitable planning, all this stuff is just easy. Like, quite honestly, most of this is like easy run-of-the-mill stuff that we see every single day, right? You honestly don't generally have to spend a lot of money to take advantage of these things. Most of them are free or next to free. And yet, you know, we see people missing them all all day, every day.

SPEAKER_01

And so knowing where every single one of those strategies, there's a high impact story. 263A adjustment. This was a client that came in and started working with us about this time last year. We didn't get to do any planning for them in 24. And while we were preparing their 24 tax returns, we noticed an issue where they weren't expensive something that they could save them over$100,000 in taxes just because we knew better their partial dispositions. Man, a partial disposition, you can use that with a whole bunch of cool strategies. If you're doing like a you know rehab on a rental or something like that, and you just replace the roof or some kind of big piece, man. A partial disposition lets you write that off, and you get to fully write that off, but then you also get to take bonus depreciation, you know, on the new assets and things. And you know, depending on, you know, we did like a case study with that big, beautiful bill seminar. If it's a commercial property, man, there's some pretty crazy compounding of strategies.

SPEAKER_02

Compounding effect with the partial disposition on some of the my goodness, yeah, guys. I'm telling you, tax strategy is new. We have a good time with it. Like it is fun because the compounding effect of it, it's not just one thing, right? It's how do you layer all these things on top of each other to where it gives the taxpayer the best benefit and the best bang for their buck, right? And so that's that's absolutely huge. And again, these are all things that in the secure phase, like you got to make sure your structure's tight. You have to, you have to make sure that you're taking advantage of these entrepreneur tax strategies because you want to be in the lower tax bracket. You want to take advantage of these almost free strategies that are just available to you, but then you get to the expansion stage, right? And at some point in time where you've gotten all your stuff together, you're paying yourself, everybody's happy. And then now you're like, all right, I've got something great that I've built here. Now I want to kind of expand it to the next level. And for some of you, that means various things, right? You got to kind of figure out what that means. But what I will tell you is that you've got to increase your expenses with your reserves. And I want you to be aware of that concept. Increase your expenses with your reserves, not with your revenue. And so if your revenue is going up, but your reserves are not going up, that's telling me that your expenses are probably getting out of hand. It doesn't make sense if you're not able to cash flow additional expenses to continue to invest that way, at least for long periods of time, right? And so expenses should only increase as reserves are increasing, right? And so if you're going to go invest in another person, you got three times reserves in your bank account, you're gonna go invest in another hire. You want to have three times their salary or three times, you know, a month of their salary in the bank so that you're squared away with it, right? And so, you know, that equals three months of their salary. That's not a big risk to you anymore, right? That's how you grow sustainably and grow reliably. Focus on your best ROI sources, right? This is not a time where you've got to completely diversify into everything. You can still focus on your best ROI sources, but you also got to understand that there's probably gonna be other opportunities. We believe in getting to a million bucks, okay, or six times reserves. A lot of you, a million bucks aren't gonna do it. But getting to a million dollars, I will tell you this. There's a my philosophy around this is is simple. I don't know anybody that is consistently making a million dollars without a million dollars in reserves. Now, they don't always have a million dollars setting in the bank account, right? In cash, but what in reserves and liquid reserves, people that consistently make a million dollars have a million dollars in reserves. Okay. So I think that's an important distinction. And I think it's something that you should aim for. And most of you, or most people will get to a spot where they are six times expenses is more than a million dollars in reserves, anyways. Well, that allows you so much opportunity to grow your business. I mean, if you're thinking about you want to hire a COO in your business someday, somebody that's gonna operate and they're like a$250,000,$350,000 employee. Well, what makes you more secure than understanding that you have enough reserves that if they screw up, you've got plenty of time to go back and fix it, right? When you start handing your baby off to other people, you need more reserves. And expansion phase is very often about handing your baby off to other people in various spots, right? And then this is where we really think about paying excess profits on a quarterly basis, right? We're used to living at the$20,000 a month. Just because we're expanding and we're making more money, it doesn't necessarily mean we need to distribute ourselves every dollar that we make every single month, right? We want the business to be able to ebb and flow a little bit. And so as you grow and you get comfortable with your monthly distributions, then profits are made proactively on a quarterly basis. Do we want these profits in our pocket? Do we want to invest in a software? Do we want to invest in a person? Do we want to do these things? We don't just say, oh, there's money in the bank, let's put it in our pocket, right? We need to have a conversation and proactively talk about do is there a need for these distributions? And if there isn't, cool, put it in your pocket. But if there is, or maybe that distribution needs to turn into wealth building. You need to go buy a couple houses, whatever that might mean. But this is where I think being proactive on a quarterly basis, knowing what your profits are and allocating that money, putting that money to work and not being reactive to the money in your bank account is huge. This is where the game really starts to get interesting is using the tax ladder, right? And some of you guys might understand this, but some of you, this is a really, really difficult concept. And I'll be honest with you, it took me several years to really get the full understanding of it. So don't feel bad if you don't understand it. But we live in a tax world where there's marginal tax rates, which means the last dollar that you earn in the year is your most taxed dollar. And your earliest dollars that you earn in the year are your least taxed dollars. And so this next graphic will show you your first$12,000 if you're single,$24,000 if you're married, finally, and joined is taxed at 10%. The next is taxed at 12%,$12,000 to$50,000 is taxed at 12%. But you have that one gap or one area that's taxed at 10%, the next area is taxed at 12%, the next area is taxed at 22%. And why does this matter? Well, this matters because when you start looking at tax saving strategies, you get the biggest bang for your buck when you're making the most money, right? Because your last dollar in is the most dollars taxed, or your first tax savings is your highest tax dollar as well, right? And so both of those can be true. And so when you go out and you buy a house and you're in the 22% tax bracket, the best you're saving is at 22 cents on the dollar. But when you're buying a house at 37%, your instant ROI, your instant return goes up substantially 22% to 37%, you get a massive delta, 15% delta on the taxes you pay or the taxes you save on that particular house. Same house, same property, same purchase price, same everything. But because your tax rate is different, that's why your decision over here, this person, this was what Caden was talking about. We can't make the same decisions as this person. We can't have comparison envy because this person might be getting a 37% benefit or a 40% benefit if you include state taxes. And this person may be only getting a 22% benefit for buying that house. And it doesn't make as much sense to buy the house, right? Yeah, so this is a huge game understanding the tax ladder and how to use it to your benefit to stay and where we like to stay. Look at this, Caden. And this is why I love chatting with you about this, is because this big gap between 24 and 32 percent is that's where we say, hey, red light, we got to figure out a way to get you below the 24% tax bracket. And usually we want you in the 22%. And if we do that, the effective tax rate is usually in the teens.

SPEAKER_01

Yep. So if you're single, we're trying to get you close to like that ballpark 105. If you're married, these increase a little bit year over year. So it's about 210 if you're married. And what that really ends up looking like if you're in a state that's got like a 5% tax rate, which is pretty average. So not talking to you if you live in New York or California or something like that. I hope you guys have a good therapist, uh, is all I'd say about that one. With those levels of income, though, you're you're gonna be paying probably like 40 to 50,000 of taxes at those income levels, so 105, 210, you're paying about you know, forty to fifty thousand dollars of taxes. And that, you know, one of the things I really like about you and how you present is you just like tell people the total honest truth. If you're not, you know, earning over those amounts, like you're not over 105 and you're single, if you're not over 210 and you're you're married or you know what have you, you need to go and create a bigger problem before you start worrying about these ones.

SPEAKER_02

Yeah, you know, that's exactly right. And usually, you know, here's the wise investors, or what I say, the wise taxpayers, and this and when they're thinking about marginal tax brackets, they're thinking about first, how do we invest in our business, right? How do we invest in our people? How do we add more benefits? How do we add better retirement plans? How do we have a better marketing plan? How do we invest in more training, more systems, more software? There's these seven areas that commonly come up. And like, hey, if I'm in a 37% tax bracket and I can go and bring in a 401k benefits for everybody, and everybody benefits from that and they want to stick around longer, that's better for the organization. That's a great time to be doing that because it's an easy deduction that adds long-term stability to your business. And again, we got to protect that's the core asset that we're protecting here. So a lot of the smart investors, when they're thinking about this tax ladder, as they're going up the tax ladder, they're trying to find out where I can invest in my business first. And then they're, especially in the real estate industry, they're like, okay, how do I invest in real estate? Right. And so rule number six is get and understand the rep status. And so as a real estate entrepreneur, you have one of the golden gooses that if you aren't taking advantage of it, you should be. And that's this rep status. That's the ability to buy properties and take write-offs for buying assets. And they're simple. I mean, for most people that are listening to this, this is easy. You're 750 hours annually. Your real estate is your primary work. You're materially participating in that work. You track your time, you actually do this stuff, right? This is not that complicated. But if you do that, then what you do get is these paper write-offs. And that's what really matters is these write-offs that allow you to take income or I should say losses from these assets and shell it against your income. You know, we're talking about a tax shelter, like shelter your income against these expenses that is on an asset that didn't cost you that the amount because you've got it leveraged. And so we see this over and over again with utilizing the IRS's money to build your portfolio, right? That's ultimately what we're doing here. And so once we understand that we have the rep status and we understand that we there's certain elections we need to make, and with a certain groupings we need to make, and we understand the how all the benefits that we get of this, now you we got to understand how to put this whole thing together, which is acquire the property, generate the depreciation, have a reduced tax liability, and then reinvest your savings. And that's that's kind of leads us to this last whole piece of the puzzle, which is the invest stage, which is this integration of everything. You've got rental income, you've got business income, you've got your other assets, you've got your net worth growth that all come together to strategically start to hockey stick your growth as an entrepreneur. And when you combine that with rule number seven, which is the rule that I'm I'm stealing from Caden, he said it on the last call tax savings should fund your wealth, not your lifestyle, right? Because your lifestyle is what is funded by that$20,000 a month and by the distributions that you're taking and putting in your pocket. That's cool. But your tax savings, no, no, no. We're reinvesting that into more tax savings tools and more wealth drivers for our life. Because again, those tax savings we know have a potential of coming due. Most of them are deferrals, right? There's a few of them that aren't, but a lot of them are deferrals. And when that comes due, we want our wealth to have exploded so that that payment is nothing. It's part of the deal. And maybe we're looking at a new tax strategy that point in time to offset that income, right? But that's the game. That's the hockey stick growth. That's how it works. And so we got another presentation. Maybe we'll do it maybe next week. I don't know. But we have another presentation that's going to be more about the tax showroom that we have for uh with inside of tech Beck CFO and these some of the advanced tax strategies that we've got. Some of these tax strategies here, leverage asset donations, uh leverage asset syndications, I should say, heavy equipment leases, software, alternative business investments, oil and gas, all these things are things that we're going to be kind of hitting on the following day uh in the presentation. So hopefully that kind of made sense about what it looks like to win the tax game. There's seven rules to it. If you get to the seven rules, entrepreneurs win the game, avoid the tax chaos, make sure you've got your right structure, make sure you're taking advantage of the gifts you're given as the entrepreneur, understand the tax ladder and how to reinvest back into your business using the tax ladder. Get that rep status if you can. If you are in the real estate industry, there's no reason not to. And then ultimately, if you build this out the right way, tax savings should fund your wealth, not your lifestyle. And your lifestyle is going to be phenomenal by doing it that way.

SPEAKER_01

Boom. Man, I think you could give Eminem a run for his money. You were just talking real quick. You covered some great stuff. You know, I think that really like one of the big bottom line takeaways from this is the IRS is always going to be a partner with you in your life. You just get to choose what kind of partner they are, if they're taking from you or if they're giving back to you. So that's right. You know, I think we need to use the rules in our favor and and make the IRS pony up. You know, it's time for the IRS to hit the polls. You know what I mean? There you go. I like it.

SPEAKER_02

I like it. Gaden, it was always fun. I feel like I didn't get enough of your input on this because I had to run through a lot of it quickly, but I did sure appreciate the interjections that you did provide.

SPEAKER_01

Yeah, absolutely. Well, I think you did a solid job. I'm looking forward to that presentation next week. It's gonna be awesome.

SPEAKER_02

Absolutely, absolutely. Don't be afraid to uh reach out, get that book, book a call with Tony if you'd like to. Again, we are the real estate CPA for many, many high-income earning real estate investors. And certainly that's what provides us kind of the niche that we have, right? It's what we do, and we feel like we're some of the best in the world at it. So, anyways, reach out to us there, download the book, get the content. We went through this stuff super fast. Hopefully that can provide you some value. All right, Caden.

SPEAKER_00

Thanks for listening to Strength in Numbers. If you're ready to take control of your finances and start building real wealth in your business, be sure to schedule your free discovery call with markets at BECTFO.com to get started. Thanks for listening, and we'll see you on the next episode.