WEBVTT 1 00:00:01.199 --> 00:00:06.879 This is a bonus episode of the Rental Income podcast, and no damn, 2 00:00:07.919 --> 00:00:11.000 I've got a couple of tax questions and I thought this might be a good 3 00:00:11.000 --> 00:00:16.399 opportunity to do a bonus episode today and get the answers to my questions and 4 00:00:16.559 --> 00:00:19.800 share it with you. So there's three things that I want to try to 5 00:00:19.839 --> 00:00:24.359 figure out today. The first thing is I've had a few people recently that 6 00:00:24.440 --> 00:00:30.480 tell me that every year they just automatically file for an extension because it lowers 7 00:00:30.519 --> 00:00:35.600 their chances of getting audited. And I want to find out it's that true. 8 00:00:35.679 --> 00:00:40.560 It is avoiding an audit just as simple as filing for an extension, 9 00:00:41.079 --> 00:00:44.759 So we'll get to the bottom of that. The second thing is we've had 10 00:00:44.799 --> 00:00:51.000 a few people on the podcast recently that are making large amounts of money and 11 00:00:51.119 --> 00:00:56.399 they're legally not paying any taxes, and I want to get a better understanding 12 00:00:56.479 --> 00:01:00.600 of exactly how that works. So we'll talk about that today. And then 13 00:01:00.640 --> 00:01:06.959 the third thing is a lot of times what I'm doing my taxes, I 14 00:01:07.120 --> 00:01:11.400 gather all my documents and I meet with my CPA and we just do the 15 00:01:11.439 --> 00:01:17.159 taxes. But I want to see what the advantages are to actually having a 16 00:01:17.359 --> 00:01:23.640 tax plan to actually sitting down with the CPA and coming up with a plan 17 00:01:23.799 --> 00:01:26.120 to pay less taxes in the future. So what we're gonna do is take 18 00:01:26.159 --> 00:01:30.680 a real quick break to thank our sponsors, will come right back and we'll 19 00:01:30.680 --> 00:01:36.079 talk to a cease from the Investor FRIENDLYCPA dot com. It's a lot of 20 00:01:36.079 --> 00:01:38.599 work to find a really good rental property, and when you actually find that 21 00:01:38.680 --> 00:01:42.799 property, you want to make sure you're working with a lender that can get 22 00:01:42.799 --> 00:01:47.680 that loan closed. The lender that I recommend is jay Lee Ridge from Ridge 23 00:01:47.760 --> 00:01:53.640 Lending Group. She's a nationwide lender and her specialty is helping investors finance rental 24 00:01:53.680 --> 00:01:57.319 properties. She has a ton of loan programs and she can find something customized 25 00:01:57.359 --> 00:02:01.239 to you for your situation. If you want to find out more or you're 26 00:02:01.239 --> 00:02:06.079 ready to get started today, just go to Ridge Lending Group dot com. 27 00:02:06.120 --> 00:02:10.840 That's r I Dge Lending Group dot com. N MLS four two zero five 28 00:02:12.000 --> 00:02:16.800 six Rebel Income Podcast. Let's start off talking about the audits. So this 29 00:02:16.919 --> 00:02:21.599 is I think kind of interesting. But in the last week, I've had 30 00:02:21.680 --> 00:02:28.400 two people tell me that every year they just automatically file for an extension because 31 00:02:28.439 --> 00:02:32.599 they've been told that that lowers their chance of getting audited? Is that true? 32 00:02:32.800 --> 00:02:37.879 Just filing earlier than I don't think it impacts that much. It just 33 00:02:38.240 --> 00:02:43.639 if you file they say January, and let's say out of five million det 34 00:02:43.680 --> 00:02:46.280 return only twenty million has been filed, you're in a very small bucket and 35 00:02:46.280 --> 00:02:50.520 your chance to be getting picked it's very high, right than you win into 36 00:02:50.520 --> 00:02:53.520 October and when all the dextern has been filed and you have five hundred million 37 00:02:53.560 --> 00:02:58.120 deacton they have to pick and it's a lot lower. Okay, So bottom 38 00:02:58.120 --> 00:03:02.199 line, so this is true that you have a lesser chance of getting audited 39 00:03:02.759 --> 00:03:08.080 if you file an extension. That's what the revenue agent told me. And 40 00:03:08.120 --> 00:03:13.800 I'm again addis is as mysterious as they can get. So that's what they 41 00:03:13.840 --> 00:03:17.000 told me, and I've been following that it has helped, honestly, because 42 00:03:17.120 --> 00:03:22.360 none of my clients have been audited, and hopefully that in a stage. 43 00:03:22.479 --> 00:03:25.639 But okay, I would agree with you, Okay, all right, awesome, 44 00:03:25.719 --> 00:03:30.639 all right, that's a great little trick. Now, is there anything 45 00:03:30.800 --> 00:03:36.120 else that you can think of or tell us about that we can do to 46 00:03:36.120 --> 00:03:40.000 prevent an audit? Like I know that if you took the home office deduction 47 00:03:40.039 --> 00:03:45.319 at one point that was an audited flag, but then now it's not. 48 00:03:46.919 --> 00:03:53.159 So is there anything else that if you do, there's a good chance you're 49 00:03:53.159 --> 00:03:57.080 going to get audited. I always say it, don't fear off and don't 50 00:03:57.120 --> 00:04:02.199 try to do wrong stuff and fraud, tax invasion and all the frauds. 51 00:04:03.039 --> 00:04:06.719 You will get screwed because at some point you might get audited again. The 52 00:04:08.000 --> 00:04:11.319 chances are low, but you lose your sleep and you never can sleep. 53 00:04:12.520 --> 00:04:16.319 There are things like home office and taking auto mileases, all those things cannot 54 00:04:16.360 --> 00:04:18.839 just trigger audit like that. I just and this is what they told me. 55 00:04:18.879 --> 00:04:24.360 Because all these are random, they will they will flag some returns for 56 00:04:24.519 --> 00:04:29.319 higher chances of audited because it has millions or dollars losses for the last three 57 00:04:29.399 --> 00:04:31.319 years and you have not been paying any taxes. Then yeah, I think 58 00:04:31.319 --> 00:04:35.879 they get in a different pool to get audited. So you're naturally higher high, 59 00:04:36.439 --> 00:04:40.879 highly like to get audited. That's given. But normally, just in 60 00:04:40.959 --> 00:04:45.480 simple returns and rental properties where you're taking normal deductions, taking home office, 61 00:04:46.439 --> 00:04:48.519 that would not be a reason for all. Okay, nothing to be afraid 62 00:04:48.560 --> 00:04:51.839 of. Just yeah, Okay, okay, all right, Now, let 63 00:04:51.839 --> 00:04:58.040 me ask you. We've had a few people on the podcast recently that have 64 00:04:58.240 --> 00:05:03.319 said that they're making large amounts of money and they're legally not paying any taxes. 65 00:05:03.360 --> 00:05:09.279 And one case that that really comes to mind is we had a guy 66 00:05:09.360 --> 00:05:15.519 on the podcast that's making a million dollars a year in rental income. What 67 00:05:15.920 --> 00:05:19.079 do you and I realize you haven't seen his returns. I realize you're you're 68 00:05:19.120 --> 00:05:26.199 not his CPA, But what do you think some of the things that what 69 00:05:26.279 --> 00:05:33.319 do you think he's doing to avoid a million dollars in taxes? Yeah? 70 00:05:33.680 --> 00:05:36.680 Very normal? Uh and this is not the one. I mean, I 71 00:05:36.720 --> 00:05:42.720 have clients who have more than that and video taxes, um. And it's 72 00:05:42.800 --> 00:05:45.480 very simple. And this is what we have been in a building on another 73 00:05:46.680 --> 00:05:49.399 podcast that we have been talking on. Right. This is this is where 74 00:05:49.439 --> 00:05:56.360 every every rich people, um. This is what every people is also doing 75 00:05:56.439 --> 00:06:00.800 wealthy people who have a lot of income coming in now you especially you specifically 76 00:06:00.920 --> 00:06:04.120 said rental income, but this can apply to business income. You know, 77 00:06:04.519 --> 00:06:09.839 you're your podcasting income, any other kind of business income, you can offset 78 00:06:10.600 --> 00:06:15.439 almost one percent of it. You get limited at the W two Capital gain 79 00:06:15.680 --> 00:06:18.560 interest. Those kind of income, they have some limitation, meaning a mere 80 00:06:18.680 --> 00:06:24.160 taxpayer can only offset up to five hundred time dolls single around Okay, it's 81 00:06:24.160 --> 00:06:27.319 a five eighty right now, I think, but around five eighty. So 82 00:06:27.439 --> 00:06:30.879 if someone comes to you and say, I have a W two employee, 83 00:06:30.000 --> 00:06:33.160 I'm a W tw employee, I make a million dollar can I offer it 84 00:06:33.160 --> 00:06:36.720 in time million dollars? No, you cannot, there's a limitation. But 85 00:06:38.160 --> 00:06:42.079 someone like him rental and it's you know, I'm sure it's a million dollar 86 00:06:42.120 --> 00:06:46.079 cast way. It's a business. He can offer an entire thing. Even 87 00:06:46.079 --> 00:06:47.800 if he makes three million, he can offer an entire thing. It's possible, 88 00:06:48.319 --> 00:06:54.040 very simple with depreciation that there's no everyone knows about it. If you're 89 00:06:54.040 --> 00:06:58.120 a render an investor, I hope you know about this. With million dollar 90 00:06:58.199 --> 00:07:01.279 cast he's probably recycling money, putting it back into the market, buying bigger, 91 00:07:01.319 --> 00:07:05.040 better properties, and the estonogy he does that if he buys a five 92 00:07:05.079 --> 00:07:09.279 million dollar asset. So this guy, I'm getting a very simple example. 93 00:07:09.319 --> 00:07:13.040 This what's happening. He makes a net let's say net tax will income is 94 00:07:13.040 --> 00:07:15.639 a million dollars. He's amazing. Right after everything's paid off, he makes 95 00:07:15.639 --> 00:07:19.639 a million doll net income. What he can do is, let's say, 96 00:07:19.759 --> 00:07:23.399 no, I mean, he's probably gonna buying bigger property. Let's say buy 97 00:07:23.439 --> 00:07:26.879 a one big commercial mall or a strip mall area which is worth five million 98 00:07:26.959 --> 00:07:30.279 dollars. He goes buys that, and he does cost segregation and he gets 99 00:07:30.279 --> 00:07:35.639 to rise up right off a million dollars from that mall against his endal income. 100 00:07:36.000 --> 00:07:41.160 So when he when he's building his long term wealth with real state, 101 00:07:41.199 --> 00:07:44.879 he's also not paying taxes on a million dollar which could he would probably would 102 00:07:44.879 --> 00:07:47.319 have paid three hundred four hundredthound dolly in tax. So basically said four hundred 103 00:07:47.319 --> 00:07:51.399 townd dolls by buying on the asset which is also building his portfolio. Is 104 00:07:51.439 --> 00:07:56.519 that simple, There's nothing complicated about this, all right. So he's buying 105 00:07:56.839 --> 00:08:01.240 properties and then getting a cost segregation set he done so that he's able to 106 00:08:01.319 --> 00:08:07.639 increase the amount of money that he's able to I guess increased the amount of 107 00:08:07.680 --> 00:08:11.560 depreciation he's able to take exactly. So buy a property, if you do 108 00:08:11.639 --> 00:08:18.439 cost sgtigation, you can take bonus depreciation and other kind of accentrated depreciation. 109 00:08:18.920 --> 00:08:22.399 The first year that sifts in tier on the town laws in tax of foreign 110 00:08:22.519 --> 00:08:26.319 town laws. If it's in high tax state, let's say then that foreign 111 00:08:26.439 --> 00:08:28.399 town laws you can put right back into own the properties, downtoayment and do 112 00:08:28.480 --> 00:08:33.080 repeat this again. Right, So that's why it's investors and real estate investors 113 00:08:33.159 --> 00:08:37.639 keeps on recycling the money which they could have paid to the government into their 114 00:08:37.639 --> 00:08:41.879 own portfolio and paydeo taxes. Is insane and nobody can achieve if you can 115 00:08:41.399 --> 00:08:46.799 do this really incredible and you've got several clients that that are doing this exact 116 00:08:46.799 --> 00:08:52.639 strategy. Oh, I for me personally, we are as indicators outselves, 117 00:08:52.679 --> 00:08:56.600 and I mean we buy be commercial properties and that property with directly off states 118 00:08:56.600 --> 00:09:00.879 and millions in taxes and not even kidding. So you're right, this is 119 00:09:00.960 --> 00:09:05.519 this happens every single day in any any real estate CPA. I'm sure you 120 00:09:05.639 --> 00:09:09.440 talk to the one hundred percent of their clients are doing this and it's not 121 00:09:09.519 --> 00:09:11.639 even that label. This year is and if you know, if you want 122 00:09:11.639 --> 00:09:16.840 to talk about tax planning, long term tax planning, if people have not 123 00:09:16.000 --> 00:09:20.159 filed that twenty twenty three taxes, so twenty twenty two taxes and they're waiting 124 00:09:20.200 --> 00:09:24.360 to finalize a few things. This would also consider doing cost segregation on their 125 00:09:24.840 --> 00:09:30.399 long term rental, not not just SOT term rental, long term rental even 126 00:09:30.440 --> 00:09:33.960 even they don't qualify as realest professionals or you know, they can release the 127 00:09:35.039 --> 00:09:37.840 losses on the passive activity the laws rule. This would consider doing it because 128 00:09:37.879 --> 00:09:41.919 it has a long term tax planning effect. And we have talked about this 129 00:09:41.000 --> 00:09:43.919 before, so I don't want to go over this. But this guy is 130 00:09:43.960 --> 00:09:48.600 doing exactly what everyone should be doing anyway, but he gets to the offset 131 00:09:48.720 --> 00:09:52.559 million dollar. Not everyone's gonna have a million dollar obviously, so it's not 132 00:09:52.159 --> 00:09:58.200 any CPA decency pay can help you achieve this. That's really incredible. So 133 00:09:58.360 --> 00:10:03.080 let me ask you about planning that. I feel like a lot of people 134 00:10:05.000 --> 00:10:11.240 just gather up their tax returns or get their tax receipts and their documentation and 135 00:10:11.679 --> 00:10:16.799 they just send it over to their CPA and there's no real thought that goes 136 00:10:16.879 --> 00:10:22.600 into it. Yeah, what do you think the benefits are of having someone 137 00:10:22.840 --> 00:10:28.039 that can actually sit down with you and come up with a plan, Like 138 00:10:28.480 --> 00:10:33.440 is that something that people do? Like do they actually come up with a 139 00:10:33.519 --> 00:10:37.600 plan so that they can take steps throughout the year that are going to benefit 140 00:10:37.720 --> 00:10:43.639 them the next time they file taxes. Oh man, I cannot tell you 141 00:10:43.759 --> 00:10:48.480 how important that is. Any This is the thing. Not everyone is going 142 00:10:48.519 --> 00:10:50.840 to understand this because not everyone is paying you know, hunt it down, 143 00:10:50.960 --> 00:10:54.240 learn tax. But we were paying you know, fifty to sixty seventy town 144 00:10:54.360 --> 00:10:58.639 learning total tax. I want to say total tax. This is what people 145 00:10:58.679 --> 00:11:01.080 don't understand because tax are complicated. Right when you go fire tax return, 146 00:11:01.519 --> 00:11:05.000 you might owe three thousand dollars and they were happy or you know, I 147 00:11:05.039 --> 00:11:07.279 didn't owe that much. But in reality, if you look at your paycheck 148 00:11:07.320 --> 00:11:11.399 and extra tax return, and if you understand your tax return, what's happening 149 00:11:11.519 --> 00:11:16.000 is you have already paid fifty thound dolls on hundred thound lows during your paycheck 150 00:11:16.120 --> 00:11:18.799 periods. Right, so you're actually paying hundred thound dollars tax. But people 151 00:11:18.840 --> 00:11:22.559 get confused with three thound dolls what they have to file and paid during the 152 00:11:22.919 --> 00:11:26.960 tax parting period. Now, why it is important and what can be done 153 00:11:28.399 --> 00:11:33.840 is absolutely amazing. I'll give you two examples, because most of the tax 154 00:11:33.919 --> 00:11:37.480 planning come come at least and from what we do extensive extensive tax planning, 155 00:11:39.480 --> 00:11:43.080 and what I've seen in all my career so far is comes from two areas. 156 00:11:43.320 --> 00:11:48.919 First area is entity structuring. Because if this guy's making million dollars, 157 00:11:48.000 --> 00:11:50.720 he could have done so much stuff, and hopefully he's already doing it, 158 00:11:52.320 --> 00:11:56.440 which looks like he's paying zero taxes, so he's doing it to have a 159 00:11:56.480 --> 00:11:58.159 right kind of entity, so you can hire your kids right, if your 160 00:11:58.240 --> 00:12:01.879 vehicle right, if you're home out of a few uniforms right, and also 161 00:12:03.000 --> 00:12:09.360 manage some deductions that QBI deductions, so many, so much things comes from 162 00:12:09.519 --> 00:12:11.440 right entity structuring. And if you do not do it right. And this 163 00:12:11.559 --> 00:12:15.559 is what I only want you to understand, and this is gonna help your 164 00:12:15.600 --> 00:12:20.639 audience realize how big of the mistake they can make if they don't do tax 165 00:12:20.720 --> 00:12:24.440 planning in the right time. Right time is when you begin. I declined. 166 00:12:24.480 --> 00:12:28.759 You know, I get these emails and calls so many times a year, 167 00:12:28.159 --> 00:12:31.279 and they literally cried during the meeting. And this is what happens. 168 00:12:31.360 --> 00:12:37.200 They will go get a random entity LLCs corporations and start moving properties in and 169 00:12:37.320 --> 00:12:39.519 out and put them in there. And when they go refinance the property, 170 00:12:39.639 --> 00:12:43.519 or when they have to buy out their partner or they have to things like 171 00:12:43.639 --> 00:12:46.559 that, they will pay three hundred four hundred pound dollars and extra tax. 172 00:12:46.639 --> 00:12:52.360 Okay extra, they could have not even paid, avoid it completely just because 173 00:12:52.440 --> 00:12:58.480 they had no tax planning done, entity structuring done when they were starting out. 174 00:12:58.840 --> 00:13:01.360 And people say, oh, I'm starting out, I have two properties. 175 00:13:01.559 --> 00:13:03.879 I'm just going to make it very easy and slow and not work with 176 00:13:03.000 --> 00:13:07.639 CPA. That would be the biggest mistake you can. Actually, it's better 177 00:13:07.759 --> 00:13:11.360 to work with the CPA when you start out. Maybe make some investment with 178 00:13:11.519 --> 00:13:13.720 him, pay the money to have a right entity structor you can scale, 179 00:13:13.799 --> 00:13:16.559 and then maybe then don't work with him. Most of you know everything. 180 00:13:16.799 --> 00:13:20.559 That's how we should be doing it. That's the first example, right. 181 00:13:20.600 --> 00:13:24.919 The second example, any destructoring is fine. The second example is even more 182 00:13:24.240 --> 00:13:31.519 important real estate. How much how big of the properties would you be buying? 183 00:13:31.919 --> 00:13:37.000 How does a new law changeine bonus appreciation affects your threshold because people go 184 00:13:37.120 --> 00:13:39.759 and buy property without knowing, okay, how much it can save your taxes? 185 00:13:39.799 --> 00:13:43.600 How much castlow is going to get impacted. Every single call with my 186 00:13:43.720 --> 00:13:46.519 clients, I always keep on repeating, okay for this year, if you 187 00:13:46.559 --> 00:13:50.120 want to offer at five hundred thousand, also be income this is your threshold. 188 00:13:50.360 --> 00:13:52.000 These are the kind of properties should be buying if you buy storage units 189 00:13:52.120 --> 00:13:56.120 versus single family household RB park. These are the threshold you should be buying 190 00:13:56.559 --> 00:14:01.039 so that they can go make informed decision and build their reosted portfolio in a 191 00:14:01.120 --> 00:14:05.879 way that they are not even paying taxes and recycle the resecle the money that 192 00:14:05.919 --> 00:14:09.879 we talk about, you can you will grow ten times faster if you have 193 00:14:09.960 --> 00:14:15.159 a good tax plan in place and come and have that quipit the grand back 194 00:14:15.480 --> 00:14:20.080 because you can scale up so much faster in a right compliance heavywey because tax 195 00:14:20.159 --> 00:14:24.919 planning has one issue about tax savings, but it's all about also about our 196 00:14:24.000 --> 00:14:28.919 being compliant, not getting audited and then not screwing and in the down the 197 00:14:28.000 --> 00:14:31.039 road paying three hundred towns extra tax. Does that makes sense? Then? 198 00:14:31.519 --> 00:14:37.000 That does that really does? I feel like just a lot of people are 199 00:14:37.840 --> 00:14:41.240 and I know me personally, I'm probably leaving a lot of money on the 200 00:14:41.360 --> 00:14:48.159 table by not coming up with a plan and not doing things right. So 201 00:14:48.600 --> 00:14:52.240 if anybody is in that situation and maybe they want to reach out to you 202 00:14:52.080 --> 00:14:56.240 and set up time to come up with the plan or to have you answer 203 00:14:56.279 --> 00:15:00.960 any questions. What would be the best way if for someone to reach out 204 00:15:01.039 --> 00:15:05.919 to you Investor FRIENDLYCPA dot com. There is a form we can fill out 205 00:15:05.000 --> 00:15:07.879 and we will reach out to you saying hey, let's skill call on my 206 00:15:09.039 --> 00:15:13.360 first call. If I'm a very genus with my time, then I will 207 00:15:13.440 --> 00:15:16.759 just give them a just like planning, I'll do the planning in first twenty 208 00:15:16.799 --> 00:15:18.639 minutes. We have a system in place. I can do this very very 209 00:15:18.720 --> 00:15:20.480 quick. I can tell you, hey, this is what used to focus 210 00:15:20.519 --> 00:15:24.120 on any twenty three and future, and depending on what's happening, I give 211 00:15:24.200 --> 00:15:28.279 them everything on the first call. I don't even charge them. I do 212 00:15:28.399 --> 00:15:33.679 that because I feel I'm being invested myself. I know how much complicated taxes 213 00:15:33.720 --> 00:15:37.360 are for you know, noncpas, and then it did just screw the investing. 214 00:15:37.519 --> 00:15:39.159 And I want people to invest in real estate. So what they want 215 00:15:39.159 --> 00:15:43.120 to do. You want to do is this type investor FRIENDLYCPA dot com and 216 00:15:43.200 --> 00:15:46.679 you'll find me or Google me or you know you email me at info at 217 00:15:46.759 --> 00:15:50.039 investor FRIENDLYCPA just saying hey, I want to scae you call. I'll lea 218 00:15:50.159 --> 00:15:54.840 out to you info at investor FRIENDLYCPA dot com. Email me and I'll respond 219 00:15:54.919 --> 00:15:58.919 personally to every one of them as sees. As always, I really appreciate 220 00:16:00.159 --> 00:16:03.960 you coming on the show to help us out and share your tax knowledge. 221 00:16:03.480 --> 00:16:07.919 If you want to reach out to ASIS, it's investor FRIENDLYCPA dot com. 222 00:16:08.720 --> 00:16:12.639 Thank you so much for checking out this bonus episode. My name is Dan 223 00:16:12.799 --> 00:16:17.360 Lane and this has been the Rental Income Podcast.