This is a bonus episode of the Rental Income podcast, and no damn,
I've got a couple of tax questions and I thought this might be a good
opportunity to do a bonus episode today and get the answers to my questions and
share it with you. So there's three things that I want to try to
figure out today. The first thing is I've had a few people recently that
tell me that every year they just automatically file for an extension because it lowers
their chances of getting audited. And I want to find out it's that true.
It is avoiding an audit just as simple as filing for an extension,
So we'll get to the bottom of that. The second thing is we've had
a few people on the podcast recently that are making large amounts of money and
they're legally not paying any taxes, and I want to get a better understanding
of exactly how that works. So we'll talk about that today. And then
the third thing is a lot of times what I'm doing my taxes, I
gather all my documents and I meet with my CPA and we just do the
taxes. But I want to see what the advantages are to actually having a
tax plan to actually sitting down with the CPA and coming up with a plan
to pay less taxes in the future. So what we're gonna do is take
a real quick break to thank our sponsors, will come right back and we'll
talk to a cease from the Investor FRIENDLYCPA dot com. It's a lot of
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That's r I Dge Lending Group dot com. N MLS four two zero five
six Rebel Income Podcast. Let's start off talking about the audits. So this
is I think kind of interesting. But in the last week, I've had
two people tell me that every year they just automatically file for an extension because
they've been told that that lowers their chance of getting audited? Is that true?
Just filing earlier than I don't think it impacts that much. It just
if you file they say January, and let's say out of five million det
return only twenty million has been filed, you're in a very small bucket and
your chance to be getting picked it's very high, right than you win into
October and when all the dextern has been filed and you have five hundred million
deacton they have to pick and it's a lot lower. Okay, So bottom
line, so this is true that you have a lesser chance of getting audited
if you file an extension. That's what the revenue agent told me. And
I'm again addis is as mysterious as they can get. So that's what they
told me, and I've been following that it has helped, honestly, because
none of my clients have been audited, and hopefully that in a stage.
But okay, I would agree with you, Okay, all right, awesome,
all right, that's a great little trick. Now, is there anything
else that you can think of or tell us about that we can do to
prevent an audit? Like I know that if you took the home office deduction
at one point that was an audited flag, but then now it's not.
So is there anything else that if you do, there's a good chance you're
going to get audited. I always say it, don't fear off and don't
try to do wrong stuff and fraud, tax invasion and all the frauds.
You will get screwed because at some point you might get audited again. The
chances are low, but you lose your sleep and you never can sleep.
There are things like home office and taking auto mileases, all those things cannot
just trigger audit like that. I just and this is what they told me.
Because all these are random, they will they will flag some returns for
higher chances of audited because it has millions or dollars losses for the last three
years and you have not been paying any taxes. Then yeah, I think
they get in a different pool to get audited. So you're naturally higher high,
highly like to get audited. That's given. But normally, just in
simple returns and rental properties where you're taking normal deductions, taking home office,
that would not be a reason for all. Okay, nothing to be afraid
of. Just yeah, Okay, okay, all right, Now, let
me ask you. We've had a few people on the podcast recently that have
said that they're making large amounts of money and they're legally not paying any taxes.
And one case that that really comes to mind is we had a guy
on the podcast that's making a million dollars a year in rental income. What
do you and I realize you haven't seen his returns. I realize you're you're
not his CPA, But what do you think some of the things that what
do you think he's doing to avoid a million dollars in taxes? Yeah?
Very normal? Uh and this is not the one. I mean, I
have clients who have more than that and video taxes, um. And it's
very simple. And this is what we have been in a building on another
podcast that we have been talking on. Right. This is this is where
every every rich people, um. This is what every people is also doing
wealthy people who have a lot of income coming in now you especially you specifically
said rental income, but this can apply to business income. You know,
you're your podcasting income, any other kind of business income, you can offset
almost one percent of it. You get limited at the W two Capital gain
interest. Those kind of income, they have some limitation, meaning a mere
taxpayer can only offset up to five hundred time dolls single around Okay, it's
a five eighty right now, I think, but around five eighty. So
if someone comes to you and say, I have a W two employee,
I'm a W tw employee, I make a million dollar can I offer it
in time million dollars? No, you cannot, there's a limitation. But
someone like him rental and it's you know, I'm sure it's a million dollar
cast way. It's a business. He can offer an entire thing. Even
if he makes three million, he can offer an entire thing. It's possible,
very simple with depreciation that there's no everyone knows about it. If you're
a render an investor, I hope you know about this. With million dollar
cast he's probably recycling money, putting it back into the market, buying bigger,
better properties, and the estonogy he does that if he buys a five
million dollar asset. So this guy, I'm getting a very simple example.
This what's happening. He makes a net let's say net tax will income is
a million dollars. He's amazing. Right after everything's paid off, he makes
a million doll net income. What he can do is, let's say,
no, I mean, he's probably gonna buying bigger property. Let's say buy
a one big commercial mall or a strip mall area which is worth five million
dollars. He goes buys that, and he does cost segregation and he gets
to rise up right off a million dollars from that mall against his endal income.
So when he when he's building his long term wealth with real state,
he's also not paying taxes on a million dollar which could he would probably would
have paid three hundred four hundredthound dolly in tax. So basically said four hundred
townd dolls by buying on the asset which is also building his portfolio. Is
that simple, There's nothing complicated about this, all right. So he's buying
properties and then getting a cost segregation set he done so that he's able to
increase the amount of money that he's able to I guess increased the amount of
depreciation he's able to take exactly. So buy a property, if you do
cost sgtigation, you can take bonus depreciation and other kind of accentrated depreciation.
The first year that sifts in tier on the town laws in tax of foreign
town laws. If it's in high tax state, let's say then that foreign
town laws you can put right back into own the properties, downtoayment and do
repeat this again. Right, So that's why it's investors and real estate investors
keeps on recycling the money which they could have paid to the government into their
own portfolio and paydeo taxes. Is insane and nobody can achieve if you can
do this really incredible and you've got several clients that that are doing this exact
strategy. Oh, I for me personally, we are as indicators outselves,
and I mean we buy be commercial properties and that property with directly off states
and millions in taxes and not even kidding. So you're right, this is
this happens every single day in any any real estate CPA. I'm sure you
talk to the one hundred percent of their clients are doing this and it's not
even that label. This year is and if you know, if you want
to talk about tax planning, long term tax planning, if people have not
filed that twenty twenty three taxes, so twenty twenty two taxes and they're waiting
to finalize a few things. This would also consider doing cost segregation on their
long term rental, not not just SOT term rental, long term rental even
even they don't qualify as realest professionals or you know, they can release the
losses on the passive activity the laws rule. This would consider doing it because
it has a long term tax planning effect. And we have talked about this
before, so I don't want to go over this. But this guy is
doing exactly what everyone should be doing anyway, but he gets to the offset
million dollar. Not everyone's gonna have a million dollar obviously, so it's not
any CPA decency pay can help you achieve this. That's really incredible. So
let me ask you about planning that. I feel like a lot of people
just gather up their tax returns or get their tax receipts and their documentation and
they just send it over to their CPA and there's no real thought that goes
into it. Yeah, what do you think the benefits are of having someone
that can actually sit down with you and come up with a plan, Like
is that something that people do? Like do they actually come up with a
plan so that they can take steps throughout the year that are going to benefit
them the next time they file taxes. Oh man, I cannot tell you
how important that is. Any This is the thing. Not everyone is going
to understand this because not everyone is paying you know, hunt it down,
learn tax. But we were paying you know, fifty to sixty seventy town
learning total tax. I want to say total tax. This is what people
don't understand because tax are complicated. Right when you go fire tax return,
you might owe three thousand dollars and they were happy or you know, I
didn't owe that much. But in reality, if you look at your paycheck
and extra tax return, and if you understand your tax return, what's happening
is you have already paid fifty thound dolls on hundred thound lows during your paycheck
periods. Right, so you're actually paying hundred thound dollars tax. But people
get confused with three thound dolls what they have to file and paid during the
tax parting period. Now, why it is important and what can be done
is absolutely amazing. I'll give you two examples, because most of the tax
planning come come at least and from what we do extensive extensive tax planning,
and what I've seen in all my career so far is comes from two areas.
First area is entity structuring. Because if this guy's making million dollars,
he could have done so much stuff, and hopefully he's already doing it,
which looks like he's paying zero taxes, so he's doing it to have a
right kind of entity, so you can hire your kids right, if your
vehicle right, if you're home out of a few uniforms right, and also
manage some deductions that QBI deductions, so many, so much things comes from
right entity structuring. And if you do not do it right. And this
is what I only want you to understand, and this is gonna help your
audience realize how big of the mistake they can make if they don't do tax
planning in the right time. Right time is when you begin. I declined.
You know, I get these emails and calls so many times a year,
and they literally cried during the meeting. And this is what happens.
They will go get a random entity LLCs corporations and start moving properties in and
out and put them in there. And when they go refinance the property,
or when they have to buy out their partner or they have to things like
that, they will pay three hundred four hundred pound dollars and extra tax.
Okay extra, they could have not even paid, avoid it completely just because
they had no tax planning done, entity structuring done when they were starting out.
And people say, oh, I'm starting out, I have two properties.
I'm just going to make it very easy and slow and not work with
CPA. That would be the biggest mistake you can. Actually, it's better
to work with the CPA when you start out. Maybe make some investment with
him, pay the money to have a right entity structor you can scale,
and then maybe then don't work with him. Most of you know everything.
That's how we should be doing it. That's the first example, right.
The second example, any destructoring is fine. The second example is even more
important real estate. How much how big of the properties would you be buying?
How does a new law changeine bonus appreciation affects your threshold because people go
and buy property without knowing, okay, how much it can save your taxes?
How much castlow is going to get impacted. Every single call with my
clients, I always keep on repeating, okay for this year, if you
want to offer at five hundred thousand, also be income this is your threshold.
These are the kind of properties should be buying if you buy storage units
versus single family household RB park. These are the threshold you should be buying
so that they can go make informed decision and build their reosted portfolio in a
way that they are not even paying taxes and recycle the resecle the money that
we talk about, you can you will grow ten times faster if you have
a good tax plan in place and come and have that quipit the grand back
because you can scale up so much faster in a right compliance heavywey because tax
planning has one issue about tax savings, but it's all about also about our
being compliant, not getting audited and then not screwing and in the down the
road paying three hundred towns extra tax. Does that makes sense? Then?
That does that really does? I feel like just a lot of people are
and I know me personally, I'm probably leaving a lot of money on the
table by not coming up with a plan and not doing things right. So
if anybody is in that situation and maybe they want to reach out to you
and set up time to come up with the plan or to have you answer
any questions. What would be the best way if for someone to reach out
to you Investor FRIENDLYCPA dot com. There is a form we can fill out
and we will reach out to you saying hey, let's skill call on my
first call. If I'm a very genus with my time, then I will
just give them a just like planning, I'll do the planning in first twenty
minutes. We have a system in place. I can do this very very
quick. I can tell you, hey, this is what used to focus
on any twenty three and future, and depending on what's happening, I give
them everything on the first call. I don't even charge them. I do
that because I feel I'm being invested myself. I know how much complicated taxes
are for you know, noncpas, and then it did just screw the investing.
And I want people to invest in real estate. So what they want
to do. You want to do is this type investor FRIENDLYCPA dot com and
you'll find me or Google me or you know you email me at info at
investor FRIENDLYCPA just saying hey, I want to scae you call. I'll lea
out to you info at investor FRIENDLYCPA dot com. Email me and I'll respond
personally to every one of them as sees. As always, I really appreciate
you coming on the show to help us out and share your tax knowledge.
If you want to reach out to ASIS, it's investor FRIENDLYCPA dot com.
Thank you so much for checking out this bonus episode. My name is Dan
Lane and this has been the Rental Income Podcast.