Latest / The Hannah Hammond Show / The Art of Legal Tax Avoidance | Karlton Dennis

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The Art of Legal Tax Avoidance | Karlton Dennis · The Hannah Hammond Show

0:00
Grant Cardone got a jet delivered and while everybody
0:02
else was chilling out, getting ready for Christmas and buying
0:06
Christmas gifts, he was taking delivery of that jet and putting
0:08
business clients on that jet. He leveraged code section 179
0:11
and code section 168. K bonus depreciation completely
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rode off the entire jet. And what about the Augusta rule?
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You can rent your house for up to 14 days without needing to
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pay any taxes on the rental income.
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I've seen taxpayers save anywhere from 10,000 upwards to
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$25,000 simply by renting their house to their business.
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I want to learn about how to event taxes for your heirs.
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If your estate is over those amounts, your heirs are going to
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pay estate taxes, which is at 40%.
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It is not 25%, it's not 30%. It is 40% estate taxes.
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It is unconstitutional to pay more in taxes than you have to.
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So why is real estate professional status so
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important? Real estate professional status
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is so important because real estate by nature is passive.
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The biggest regret that I have is.
1:03
Welcome back to the Hannah Hammond Show.
1:04
I'm here today with Carlton Dennis and we get to talk about
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my favorite topic of all time outside of real estate, but it
1:10
ties in tax strategy. And you always talk about the
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number one most expensive thing that we pay for isn't our house,
1:18
it isn't our car, it's not our credit card bills, it's taxes.
1:22
And you've built an incredible brand.
1:24
You have over 1,000,000 followers on YouTube.
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You have 700 and something thousand followers on Instagram.
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And you're one of the most prominent financial figures
1:31
right now in the United States. And, and you've just decided to
1:35
actually share all your secrets to the public and really help
1:38
people learn all of these tools. And it's amazing what you're
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doing. And I love every single one of
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your videos. And I'm super excited to dive
1:44
into all the strategies both for business owners and W2 employees
1:48
and how they can save taxes and compound their wealth and and
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live a better, richer, wealthier for your happier life.
1:53
So thanks for coming on. Thank you so much.
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Well, I'm excited. First off, that was an
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incredible intro, and my goal today is to simplify taxes.
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I know a lot of people get stressed out when they think
2:01
about taxes. Yes, it is your biggest expense,
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but we're going to break down principles today for people to
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understand how the tax system is actually an incentive system.
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And if you just find what those incentives are, you can actually
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engineer a way for you to get to freedom with an absence of worry
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about money. That's what we want.
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I love it. And I remember going back to,
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you know, in in my beginnings that we were just talking
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offline about the Monopoly video on YouTube, which we'll have to
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play. But it's his little kid playing
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Monopoly and he's crying and his mom's like, what's wrong?
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And he's like taxes. And she's like, what's taxes?
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He's like, it's the worst. She goes, it's part of the game.
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And he goes, it's the worst part of the game.
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That is such a funny video. So true.
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But if you have the strategies that you teach, it can actually
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be the IRS code can be the best part of the game because there
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are opportunities and rules in there that are made for saving
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on taxes. And you just have to have that
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awareness. And unfortunately, we're not
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taught this in school. No, we're not.
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I wish we were. So I, I would love your
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background. I would love to dive in because
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you have a really incredible mother who Share your story of
3:04
like how you became obsessed with taxes and some of those
3:06
early lessons in your childhood that started to frame the way
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that you thought about money. Yeah, so I didn't go to school
3:12
for accounting. I think it always surprises
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people. I was a football athlete.
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I got a full ride scholarship to go play at Cal Poly San Luis
3:17
Obispo, which is great. Got there, realized it wasn't
3:19
going to go to the NFL. So right around my senior year,
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I went to career fair, got a job in sales and started my my side
3:27
hustle business of being a personal trainer.
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What I didn't realize is that when you make 1099 income,
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you're 1 supposed to report all of it and two, you need to make
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sure you're tracking your expenses.
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So a year into being a taxpayer, I got a letter from the IRS
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saying that I owe them about $16,000 and I only had about
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$11,000 in my bank account. I called up my mom and I said,
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hey mom, I just got a letter from this person named Uncle
3:49
Sam. I don't think I've ever seen him
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before. She's like, yeah, he's not
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family and you should have called me sooner.
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And so I quit my job. I moved out of Hollywood, CA
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because I can no longer afford my rent.
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I went back into the same room that I lived in in grade school
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and I went to go work in my family owned business.
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My mom had owned a tax and accounting firm for over 30
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years, since before I was even born.
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And being dropped on her sales floor was like a big wake up
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call. I didn't know anything about
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taxes, but I had a Commission based salary to sell tax
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planning for her. So in the first month, I'll be
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honest with you, I didn't make any money.
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I was just more focused on fitness and building up my
4:23
clientele. But I have a very strong
4:26
definitive black mother. And so she came into the office
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one day and she said, Carlton, I'm going to fire you if you
4:30
don't make a sell in the next week.
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So I had something to do now. I went to Target, I bought a
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voice recorder and I slid a voice recorder in my mom's
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office and for 48 hours it listened to her entire
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conversation. And this is where my passion
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started with tax. The first people that I heard in
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the voice recording were just people that were coming in to
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file a tax return. A firefighter, real estate
4:50
agent, maybe 300 K in income. They filed the returns,
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everything was all cool. But the next people that came
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in, they're making closer to about 600700K.
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One person was self-employed and the other was a stay at home
5:01
mom. And my mom elegantly explained
5:03
how you can qualify for real estate strategies and real
5:07
estate professional status. And she sold them a $25,000 tax
5:11
plan in a 30 minute window. And they signed the engagement
5:14
agreement. They they made the payment.
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And then the next client was very similar, another $25,000
5:18
engagement, another 25,000 engagement.
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And what I realized is that in one day, my mom was able to use
5:24
her knowledge and what she knew about the tax code to sell tax
5:27
plans to people. But these tax plans weren't just
5:30
a cost, they were an investment. If someone was going to pay my
5:33
mother $25,000, they're expected to save at least about 100,000
5:36
two $100,000. And that's what I fell in love
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with. I like the idea of being a
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personal trainer and helping somebody get into shape, but I
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loved even more putting money in somebody's pocket and turning
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around and letting them spend that with their family and
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create more opportunities and memories.
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So that's where my passion for the tax code really started.
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But I'll be honest with you, Hannah, it wasn't until I ran
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into a situation where my grandmother got sick.
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My mom had to leave the office and go to the hospital, and I
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was dealt with my first in office appointment.
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Now, this person that came in, he was a little bit older.
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He was in his 80s. I could tell he was wealthy and
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he brought his tax returns. I did not know how to read tax
6:12
returns yet. When we sat in the conference
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room, I had already memorized the sales pitch that I had
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memorized from the voice recorder.
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And so I went into the sales pitch and he stopped me right
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then and there. And he said, young man, young
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man, my tax returns are right in front of you.
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Open them up and read them and tell me what you can do.
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So I didn't want to, you know, disrespect the person.
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I opened up the tax returns and right there on line, 100 million
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Rev Oh my gosh, this old guy is making 100 million a year.
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Like the tax strategies I was talking about were for like
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people making, you know, six or seven figures.
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This guy is a nine figure earner.
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And I started flipping the returns and I just saw real
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estate after real estate commercial, commercial.
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Then I got to the business side, business returns of meat packing
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companies and farms that he owned, and I just closed the
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return and went right back into my sales pitch.
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I'm like, what can I actually do for this guy?
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And he stopped me right there. And he said, you don't know how
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to help me save money right now. So I'm going to get up here.
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Tell your mother that she can call me back when she wants to
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speak with me. Now Hannah, at the time I was
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probably like 220 lbs, was working out like 3 * a day.
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I had so much testosterone in my body.
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I feel like all the testosterone left my body in that moment.
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I felt so soft, I felt so weak. And so I went on the Internet
7:26
that night and I said, what is the highest designation the IRS
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gives without me having to go back to accounting school?
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And it was the enrolled agent's license.
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If you become an enrolled agent, you're proficient in the tax
7:36
code. You're licensed in all 50
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states, not technically ACPA, but you can do all the things
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ACPA can do. And most importantly, you
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primarily focus on tax law. If somebody tells you to go look
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at a return, you better know how to read it.
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If somebody needs to figure out a way to reduce their taxes, you
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better know the answer. So I studied, I passed the test,
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and I felt like I woke up with superpowers.
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That's how I became a tax professional.
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That's amazing. I love that story.
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And you did. Did your mom teach you guys a
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lot about tax strategy when you were growing up too?
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Yeah, my mom taught me a lot about investing when we were
8:06
growing up. And she said that the tax code
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favors investors. And she said eventually you're
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going to become a landlord, Carlton.
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You're going to own real estate if you don't want to pay taxes.
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That always stuck stuck in my mind, but was never something I
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really, you know, was passionate about.
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I didn't really view myself as wanting to be a big real estate
8:22
investor. I view myself wanting to have my
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own big house and nice cars and stuff like that.
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Just the kid, the kid in me. But she taught us principles
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around investing and depreciation growing up.
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She taught me that when you drive a car off a lot that it
8:35
depreciates. But she also told me a house
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that sits outside in the rain, the sleet in the snow, also
8:39
depreciates to Carlton. So it's basic principles she was
8:42
teaching. Yeah, that's so important.
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And then you did she give you the book Rich Dad, Poor Dad, or
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did you find that yourself? Yeah, So she gave me the book
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Rich Dad, Poor Dad after a conference.
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Everybody attended this Apartment Owners Association
8:54
conference at my mom spoke at. And right after the conference,
8:57
my mom gave me this book Rich Dad, Poor Dad.
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And she's like, read this book because that was the book that
9:02
everybody else was mentioning in this conference.
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And once I read Rich Dad, Poor Dad, it was very simple for me
9:08
to see the differences between being an employee versus being a
9:12
business owner from someone who's trading their time for
9:14
money versus someone who's making their money work for
9:16
themselves, like an investor. And so overtime, I realized I
9:19
want to be the rich dad. I don't want to be the dad that
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is working 40 hours a week and doesn't have any anything to say
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for. It right.
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Yeah. And that was the same thing.
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When I read that book at 13, I was like, Oh my gosh, this makes
9:30
so much sense. It's so easy to understand.
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I want to be a real estate investor.
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I want to be a business owner, you know, mind your own
9:36
business, buy assets, not liabilities, all of those things
9:39
that he teaches so you can have financial freedom.
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But I still had that fear of go to school, get a job, invest in
9:46
your 4O1K, buy a house and, and have a white picket fence and
9:50
someday you'll retire and all this stuff.
9:51
So. The American Dream.
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We were sold. Exactly.
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Yeah. So I actually did both.
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You know, I was like, well, let me try both.
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Let me see for myself. And that way I don't have any
10:00
regrets later in my life. Or if I fail in business or I'm
10:02
not able to do it, I at least can go to college and have a
10:05
degree. And so that's why I became so
10:07
passionate about entrepreneurship and real estate
10:09
because that was my exact story. Like I got my license at 18
10:13
years old, I got a full ride scholarship to engineering
10:16
school, was going to engineering school while selling real estate
10:21
on the side. And when I was 18, I sold a
10:23
commercial building that summer before college for 1.1 million,
10:27
made 36,000 which is more than my parents made in a year.
10:30
And I'm 18 and use that money to buy my first investment
10:34
property. And I remember just like shaking
10:37
at the closing table. Like what are the markets going
10:39
to crash? What if I lose all my money?
10:40
And it was a $76,000 property, one bedroom condo.
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I had to, I had to have, I have a place to live in college
10:45
anyway, and put $25,000 down and renovated that property and
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ended up making hundreds of thousands on that property over
10:53
the course of time. But as I started to do that
10:56
while I still went to school and then ended up getting offered a
11:00
job as an engineer. And I remember the first time I
11:04
got my paycheck, I could bring my brother on the show and he
11:07
would talk about it, 'cause he makes fun of me still to this
11:09
day. But I remember the first
11:10
paycheck, I'm sitting in my cubicle in my little dungeon and
11:13
I look at the paycheck and I'm so excited because I got it was
11:16
a great salary. I mean, I'm a fresh out of
11:18
college engineering student, which is about the highest
11:21
starting salary you can get. And I started crying.
11:25
I opened the check and I felt like that little kid in
11:27
Monopoly. And I was like, taxes are the
11:30
worst part of the game of like, what can I do?
11:32
Half of the money was gone with your insurance and your Social
11:35
Security or whatever, your contribution and then and then
11:38
taxes. And I was like, what can I do
11:40
about this? And they're like, there's
11:41
nothing you can do about it is taxes.
11:43
Welcome to the game. There's only two things that are
11:44
guaranteed death and taxes. I'm like, well, I don't like
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this at all. And so how can I study the tax
11:52
code? And as I sorry, I started
11:55
studying it on my own because I realized my accountant, just
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like you say, your tax person is not a tax strategist, right?
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Your tax, whatever the person does, your tax returns doesn't
12:05
actually care about your money and that you need an actual
12:07
strategist. And so I took it upon myself to
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study the tax code and learn all of the loopholes.
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And that's why I became obsessed with real estate and
12:15
entrepreneurship. Because when you look at a
12:17
compound calculator and you're saving 4050% a year, your wealth
12:22
compounds like insane. That is cash flow.
12:25
That is cash flow. The sucky part about when you go
12:28
the traditional route W2, which by the way, that's the same
12:31
route that I took coming out of college too, I went and got a
12:34
paying job is you earn money first, Uncle Sam gets his cut
12:38
2nd and then you're leftover to spend whatever is leftover.
12:42
It gives you no control. And entrepreneurship is
12:44
completely different. You earn money first.
12:47
You spend money yourself on the items that you need for business
12:50
that are ordinary, necessary, and then you give Uncle Sam
12:53
money last. That business model in itself
12:56
just identifies more with my personality.
12:59
And I think a lot of people that end up doing or learning about
13:03
tax strategy have this inkling like, well, there's always
13:06
something I can do. They don't accept the fact this
13:08
is just a game. Congratulations.
13:10
This is just, you know, you being successful.
13:14
Something tells me that there's something else I could be doing.
13:17
And those people, those are the ones that typically go around
13:20
their accountants and start studying YouTube or go research
13:24
what a tax strategist is. Or we'll download tax books and
13:26
Start learning about different loopholes and strategies you can
13:28
leverage. Yeah.
13:29
And I, I remember when I was going through this process, I
13:32
was always frugal, you know, raised in scarcity, we didn't
13:34
have a lot of money. And so I was always trying to
13:36
find, like, the cheapest resource to do things.
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So I found the cheapest, you know, bookkeeper and the
13:41
cheapest person to file my tax return.
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And when I was like, why is this so high in taxes?
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I I thought I was doing all the right things.
13:48
I'm an entrepreneur. I have my write off.
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So they're like, that's just the way it works.
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There's nothing more you can do. And I'm like, OK, well, you're
13:54
fired. And I'm not settling for that
13:56
answer. And that's when I really started
13:58
to see the importance of hiring someone like yourself that's
14:00
actually an advisor. Because just like you had said,
14:03
if you're paying $25,000 but you're saving 100,000, that's a
14:07
lot better than paying $500 and you're spending 100,000, right?
14:11
And then, yeah, so investing in yourself and having those great
14:15
advisors is so, so, so important.
14:17
It's one of my biggest regrets that I didn't do sooner and
14:19
ended up costing me a lot more money than I than I could have,
14:23
you know, had to pay. You know, it's funny, I actually
14:25
watched a video from Grant Cardone back in 2021.
14:29
It was on his YouTube account. And he's he's saying to these
14:31
people on a podcast, it's like, man, I had a problem.
14:35
It was November. I had, you know, my, my
14:38
accountant calls me up. He says, hey, man, we're going
14:41
to have to write this check. And Grant's like, Nah, man,
14:43
there has to be something we can do.
14:45
And his accountant said, sorry, there's nothing else we can do.
14:48
He hung up on his account. And then he calls Gulfstream and
14:52
says, hey, do you guys have any jets available?
14:54
They're like, Grant, what are you talking about?
14:56
It's like Thanksgiving right now.
14:57
Like, how are we supposed to get you a jet delivered?
14:59
It's like, do you guys have any jets available?
15:01
They're like, no, we don't have any jets available.
15:03
Grant, sorry, hangs up, calls his controller and says, wire
15:07
Gulfstream. A check for X amount of dollars
15:09
sends it to Gulfstream. Goldstrom calls him back and
15:12
says, wow, we've never seen anybody do this.
15:16
All right, we're going to get you one delivered.
15:17
Grant Cardone got a jet delivered.
15:19
And while everybody else was chilling out by getting ready
15:22
for Christmas and buying Christmas gifts, he was taking
15:25
delivery of that jet and putting business clients on that jet.
15:27
He leveraged Code section 179 and code section 168.
15:30
K bonus depreciation completely rode off the entire jet.
15:34
It offsetted his tax bill for that entire year, and he had
15:37
losses from the depreciation that rolled over into his
15:40
following year's tax return. That is the perfect sign of
15:43
somebody that was willing to go around their accountant because
15:46
they know there's always something you can do.
15:49
Yeah, it's I was actually, she's just on a call with, do you know
15:53
Barry Habib? He's like a chief economist.
15:56
Barry Habib. I'm not sure if I know that
15:57
person. Yeah.
15:58
Anyway, I was on the phone with him yesterday and he was talking
16:01
about how he's really passionate about jets for tax strategy.
16:04
Right now he's in the jet business.
16:05
Oh, Barry. Yes, yes, I know Barry.
16:07
I had a call with Barry like literally 2 weeks ago.
16:09
He his programs are incredible. Yeah, he's awesome.
16:13
Yeah, he's in Palm Beach. Yeah.
16:14
Palm. Beach And he does, yeah, Tony
16:17
Robbins and Dean and he speaks at Tony's events and things like
16:20
that. But anyway, so we were, we were
16:22
chatting about that 100% bonus appreciation.
16:24
So explain. And I told him, I'm like, well,
16:27
I just can't wait till I have a big enough tax problem where I
16:29
can use the excuse to go buy a jet because no, you can charter
16:32
it and you can be, he was guaranteeing a 15% return on
16:37
your money, plus you get the depreciation.
16:39
So like explain that to the audience.
16:41
And this goes the same whether it's a car, any 6000 LB vehicle,
16:45
right? Whether it's a car, a jet, a
16:47
piece of machinery or a piece of, of real estate.
16:50
So like, what is depreciation and why is it such a beautiful
16:53
part of saving taxes? Yeah.
16:54
So depreciation is the ability to recover your cost on the wear
16:57
and tear of an asset. That's the basics of
17:00
depreciation. The government says that if you
17:01
buy a business asset and you place it in business, this
17:04
business asset has what's called useful life.
17:06
When is this piece of property going to be completely exhausted
17:10
or completely ready to be replaced?
17:13
And with vehicles, vehicles typically have a depreciable
17:16
basis of five years. So if you buy a car and you
17:18
place it inside your business, you can depreciate that car over
17:21
five years. Well, most people are like,
17:23
well, is there a way for me to get a bigger tax write off?
17:26
And one of the ways in which the government has helped business
17:28
owners get bigger tax write offs is introducing code section 1179
17:33
and code section 168K. Now you can buy a vehicle that
17:36
weighs over 6000 lbs, place it inside of your business and
17:40
deduct the entire purchase price of that vehicle.
17:42
Well, do I only have to buy cars or can I look at jets as well?
17:46
Jets are vehicles as well. And then the aviation space.
17:49
Just like when you buy a car, you can put a down payment down
17:52
typically between 20 to 40%. Let's just say you have a
17:55
$2,000,000 jet. You put down 400,000, you're
17:58
going to finance 1.6. Well guess what, that 1.6 is
18:01
still at risk and you get to deduct the whole 1.6 plus your
18:06
400K. That's a $2,000,000 tax write
18:09
off on your tax returns, even though you only put $400,000
18:12
down. Now what you have to do if you
18:14
want to be able to use that depreciation against active
18:17
forms of income is you need to make sure that vehicle is being
18:20
used for business and you're materially participating.
18:22
So that vehicle needs to be chartered probably weekly, if
18:26
not monthly, and you need to spend at least 500 hours in that
18:30
business in the year if you want to use the depreciation to
18:33
offset flow through income from your S corporation or your LLC.
18:36
So really love aviation. A lot of people are starting to
18:40
jump into aviation just because we're starting to get some more
18:43
refurbished jets happening. Oh, yeah, yeah.
18:45
I mean, with the big beautiful bill that that with 100% bonus
18:48
depreciation back, I was getting a little bit scared there for a
18:51
minute. I think we all were.
18:53
Yeah. I mean, we were going to be at
18:55
what, 20%? I was sitting there July 4th
18:57
just being like, please just get me this 100% bonus appreciation
19:01
so I can drop this YouTube video tomorrow that I created a month
19:04
ago. I just wanted it to happen so
19:07
bad because bonus depreciation being at 100% does help
19:10
everybody. It helps everybody.
19:12
It allows for entrepreneurs to hire more people.
19:15
If I'm able to offset my tax bill, I can expand my business
19:18
more, which means I need to hire more employees.
19:20
Just because you see a lot of these tax benefits favoring
19:22
business owners that you think W2 taxpayers are getting the
19:25
short end of the stick. Not necessarily.
19:27
Business owners hired W2 taxpayers.
19:29
So business owners need to be in a position where they can afford
19:32
to keep their employees. And so that's what the
19:34
government's trying. To do right, Yeah.
19:36
And just for the audience, if so, 100% bonus depreciation,
19:41
like for the government to allow you to do that, just like you
19:44
were just saying, it allows you to deduct 100% of that asset
19:49
value from your earned earned income.
19:52
So like let's say you're at a, let's just call it a 50% tax
19:55
bracket and you buy a $2,000,000 jet.
19:58
You can then you make $2,000,000 of earned income that year.
20:01
You can bonus depreciate it and deduct $2,000,000 from your
20:05
earned income, which would save you around $1,000,000 in taxes.
20:09
And you only had to put down 20% which is 400,000.
20:11
So you make a $400,000 investment, which is already
20:14
gone to Uncle Sam if you didn't buy it.
20:17
And with that $400,000 investment, you save $1,000,000
20:20
of cash. And you actually have an asset
20:22
that can go out and work for you and put more money in your
20:25
pocket. Yeah.
20:26
Now you have a jet that's being chartered, making you 1015% a
20:29
year. You started a new business
20:32
model, but the new business model was you trying to also
20:35
offset your tax liability from your other business.
20:37
So what you're doing is you're reinvesting into
20:40
entrepreneurship to try to avoid taxes.
20:43
The government loves that. What happens is, is that people
20:46
get off of and unfortunately have to say this, people get off
20:49
the treadmill of investing, right?
20:51
The government favors investors, period.
20:54
The moment you stop investing, whether it's back in your
20:56
business or into real estate, your tax bill starts to climb.
20:59
So you have to constantly be investing if you want to reduce
21:02
your tax liability or you have to be looking for ways to
21:05
restructure your income. Yeah, 'cause I mean, that's how
21:07
the economy works. Like money has to constantly be
21:09
flowing and it has to constantly be working, and it doesn't help
21:12
anybody. If it's just sitting 100% it's
21:14
got to be making babies, otherwise it's either growing or
21:16
it's dying. And you get some people that
21:18
will say, well, I don't want to buy real estate.
21:20
OK, Well then pay taxes because at the end of the day,
21:24
somebody's going to get paid. Somebody's going to get paid.
21:26
I would rather write a check and make a down payment on a piece
21:30
of property and be a landlord and figure out a system around
21:34
having property managers than just writing checks to the
21:36
government and knowing that the government's sending money off
21:39
to various different countries without my freaking control
21:41
right now. I would much rather play into
21:44
this incentive program that they've created and started
21:47
providing affordable housing. And by doing so, if I get
21:50
depreciation that I can use offset my active forms of
21:52
income, so be it. I'm all for it.
21:54
Yeah. So let's dive into that and
21:56
let's call this segment you know business owner advantages and
22:01
then after we'll talk about W2 advantages and what W2 earners
22:05
can do. Talk about the stay at home, you
22:08
know wife principle, how to get real estate professional status
22:10
of different strategies there. But right now in the in the
22:14
light of entrepreneurship. So why is real estate
22:19
professional status so important and how does that benefit
22:23
entrepreneurs from being a real estate professional versus being
22:26
an entrepreneur in a different business where they're not a
22:28
real estate professional? Real estate professional status
22:30
is so important because real estate by nature is passive,
22:35
which means all the expenses associated with real estate are
22:38
going to be passive. So if you go to file your tax
22:40
returns and you have what's called an operating loss, that
22:44
loss from real estate's a passive loss.
22:46
If you have AW two job or a business and you're making
22:49
earned income or ordinary income, by IRS definition it's
22:52
called non passive income. Passive losses cannot offset non
22:57
passive income. So if you are a real estate
23:00
professional, you have shown the IRS that your real estate is
23:04
active, just like your business income or your W2, which means
23:08
that the losses switch from being passive losses to being
23:10
non passive losses. So you can use all the
23:13
deductions in real estate now to offset W2 1099 income flow
23:18
through income from your S corporation.
23:20
I mean, I had taxpayers last year, Hannah, that you know,
23:23
we're making well over two $3,000,000 a year qualify their
23:26
spouses as real estate professionals purchase enough
23:29
real estate, did enough cost segregation studies to create
23:32
these losses on the tax returns. They completely wiped out their
23:34
entire tax bill, which simply real estate, no other
23:37
strategies. So absolutely can happen.
23:39
Oh. It's it's amazing.
23:40
And when you, it's the same concept.
23:42
So when you buy a real estate asset, let's say you buy it for
23:45
$2,000,000, you can also accelerate the depreciation.
23:49
You're not going to get the full 2 million like you know, the
23:52
jet, because not the whole asset is like some of the parts of the
23:56
of real estate actually does last a very long time.
23:59
So you can't accelerate that. But parts of it like flooring
24:02
and you know, carpets and cabinets and things like that
24:05
can be accelerated because they have a shorter useful life.
24:08
And so and depending on the real estate asset, your amount of the
24:13
bonus appreciation that you can get will vary because like
24:16
hotels, there's a lot of furnitures, fixtures and
24:18
equipment, correct. And so you can get a bigger
24:20
write off from that asset versus you know something else that's
24:25
maybe just like a standalone triple net lease building that
24:27
doesn't have quite as much. But either way you can generally
24:29
get 20 to 40% of the asset value as a bonus depreciation.
24:34
Yes, with that that 100% and the same thing you put 20% down or
24:38
25% down on that asset. So that money is already gone
24:41
anyway. And then you get to have that
24:43
passive income and build your portfolio that way.
24:46
One of the things I love to tell people when they're thinking
24:48
about real estate is you need to know what you're buying when it
24:51
comes to depreciation because the government only allows you
24:53
to depreciate building amount. They don't allow you to
24:56
depreciate land. So if I am buying a $1 million
24:59
building here in Arizona, Arizona real estate favors
25:03
building amount a little bit more than land.
25:06
Whereas if you spend $1,000,000 in California, that $1 million
25:09
majority of it's going to land value than property value
25:12
because land is so much more expensive in California.
25:15
So let's just say in Arizona it's eighty, 2080% of the
25:18
purchase price is building, 20% of the purchase price is the
25:21
land. That $800,000 is what I get to
25:24
depreciate over 27 1/2 years if it's residential, 39 years if
25:28
it's commercial. On building amount, when
25:31
applying a cost segregation study and being able to use
25:33
bonus depreciation, you can get somewhere between 20 to 40% of
25:37
the building amounts via total value as a year 1 tax write off.
25:41
So that could be up to $320,000 that you're receiving as a year
25:45
one loss. Now, again, if we qualify as a
25:48
real estate professional, we're showing the IRS that we're
25:50
playing an active role inside of our real estate operation. 750
25:54
hours is what the test is and you have to show the IRS you're
25:56
spending more time in real estate than any other thing,
25:59
which is why I always recommend your spouse do this.
26:00
If your spouse is not able to work or is not a position where
26:03
they need to work, you can qualify a spouse for this.
26:06
Now you can take that $320,000 deduction and go apply it
26:09
against $320,000 of business income or W2 income or any other
26:14
forms of income that you might have.
26:16
That is the power of being able to do a cost segregation study.
26:19
The bonus depreciation. Now this is the part that most
26:22
people get a little tripped up on because you can apply bonus
26:24
depreciation in real estate just as you can apply a bonus
26:27
depreciation on a vehicle. So where does the bonus part
26:31
happen in real estate? When you do a cost segregation
26:34
study, just like Hannah said, you're re categorizing
26:36
components of your property into structural and non structural
26:39
components. Non structural components are
26:41
the flooring, the windows, the cabinet, since the the
26:45
appliances. Pretty much if you flip the
26:47
house upside down, anything that would fall out if you shook it
26:50
is considered non structural. So the IRS allows you to move
26:53
non structural components into a five year bucket, A7 year
26:56
bucket, and a 15 year bucket. While non structural components,
27:00
like we said, make up 20 to 40% of the entire building's
27:03
purchase price. So when you're doing this cost
27:06
segregation study, you just move non structural components into a
27:09
five year window, A7 year window and a 15 year window.
27:12
Bonus depreciation says anything that has useful life of 20 years
27:16
or less you can write off in one year.
27:19
So This is why the cost segregation study is so powerful
27:22
today. We have 100% bonus depreciation
27:25
on five year property, seven-year property, 15 year
27:28
property, anything that's not those things, it's considered
27:31
structural, which is written off over 27 1/2 years.
27:34
That's typically about 60 to 70% of your purchase price of the
27:37
building amount is going to be structural, but everything else
27:41
you can take 100% bonus appreciation on.
27:43
And that's why we get excited when we talk about Cossacks.
27:45
Yeah. And then you still get
27:46
depreciation for the remaining time each year to help offset
27:49
your income tax on your passive income from renting it I.
27:52
Feel like I have to remind people that because when people
27:54
hear Cossack, they think, OK, well what about depreciation
27:56
recapture? Hold on a second.
27:58
First off, you still have your building structure amount over
28:01
27 1/2 years and that's still 60%.
28:05
You're paying depreciation recapture on what you
28:07
accelerated if you decide to sell without doing another
28:11
strategy, AKA 1030 31 exchange. So I always ask taxpayers before
28:15
even considering doing a cost irrigation study is are you a
28:18
true real estate investor? Do you want to be in real estate
28:22
for long periods of time? Because if you do, you're not
28:24
going to worry about depreciation recapture because
28:26
you're going to leverage strategies like the IRC 1031
28:29
where you can sell your property and roll 100% of your capital
28:32
gains into a new property within 180 daytime period and not have
28:36
any games to worry about. And now you're in a new asset
28:38
that you can perform a new cost segregation study on.
28:41
So this is a part of the game that we're talking about here,
28:43
Hannah, that most people have to start to adopt if they really
28:47
view themselves as real real estate investors.
28:49
Right. And for those who don't know
28:51
what is a 10/31 exchange? So well, let's first cover
28:55
recapture, right, because you get depreciation.
28:58
But if you sell that asset, if you're like you wouldn't want to
29:00
do a cost egg. If you're doing a flip, you want
29:03
it to be a longer term hold because you do have of that
29:05
recapture. So explain what a recapture is
29:07
and then how to avoid it. Yeah.
29:08
So when you buy real estate, you're putting down typically a
29:12
down payment of 20% and you're financing the other 80%.
29:14
But the government says we'll get let you depreciate the
29:17
entire asset. You get to write off the entire
29:20
building amount and it's called depreciation.
29:22
But because we're giving you this benefit of depreciation on
29:26
the entire asset, if you sell this asset, we want that back in
29:30
the form of ordinary income taxes.
29:32
We're going to report whatever we gave you in depreciation and
29:35
you're going to receive a little 1099.
29:36
You're going to report that back on your tax returns and pay
29:38
taxes on it. That is depreciation recapture.
29:41
It's taxed at ordinary income rates as high as 37%.
29:45
So if you go do a cost irrigation study, you
29:47
accelerated depreciation and then a year later or two years
29:50
later you're selling that property.
29:51
All of that accelerated depreciation you took is going
29:54
to come back to you in the form of income like a paycheck.
29:57
Most taxpayers don't want to do that, so they'll look to the tax
30:00
code for solutions. One of the solutions that was
30:02
written into the tax code is IRC 1031.
30:05
IRC 1031 lets you sell a property and buy a like kind
30:09
property within 180 day window. You get 45 days to identify an
30:13
asset that's equal or greater in value than the asset that you're
30:15
selling. And then if you use a third
30:17
party intermediary, they're completing the transaction for
30:19
you. They're going to hold the money
30:21
in escrow and roll the money that you have into the new asset
30:24
that you're buying. Why is that beneficial for you?
30:27
Well, you're probably buying a property that's equal or greater
30:30
in value, which means you possibly have more cash flow
30:32
potential, more debt pay down potential, but more importantly,
30:35
you're going to get another cost irrigation study if you would
30:38
like to on that new asset because that new asset claims
30:41
depreciation as well. This is what we call kicking the
30:44
can down the road because the IRS allows you to do 1031
30:47
exchanges all the way until you die.
30:49
Right, yes. And then there's more strategies
30:51
for when you die to transfer those that.
30:54
One up for you, of course. Absolutely.
30:56
Which we need to talk about. Step up a base and trust and all
31:00
the things. So OK, before we move on to that
31:04
that subject. So with the the bonus
31:07
depreciation, you get the recapture and the reason it's
31:10
equal or greater value, you could buy one less, but then
31:13
you're going to have a boot and you're going to have a
31:14
difference and you don't have to pay taxes on that amount.
31:17
So generally equal or greater value will will make sure that
31:20
you don't have to pay any of the recapture and you roll it into
31:23
another asset. It's generally a bigger asset
31:26
and more more income. All the things that you do a new
31:29
study and usually you'll even get additional depreciation
31:31
because it's a bigger asset. So it clears the the recapture
31:34
and then you have even a little bit more depreciation.
31:37
So if you're going to sell assets that you depreciated,
31:40
that would be the best way to do it.
31:42
And then you could even get into like DSTS and drop in swaps and
31:46
ticks and all those things. But I don't know if we want to
31:48
go that team. Opportunity Zones, Delaware
31:50
Statutory Trusts, DSTS Yes you can roll your.
31:53
Zones are great, yeah, yeah, yeah, OK.
31:55
There's a lot for us to cover. So, so yeah.
31:59
And then so basically like let's say you no longer want to buy
32:03
your own assets and manage your own assets, there's
32:06
opportunities for you to 1031 exchange into more of a pass it
32:09
or partnership with another fund manager or something like.
32:13
The Delaware statutory trust when somebody else is managing
32:16
the asset and I'm just receiving a paycheck.
32:18
So what is a Delaware statutory trust?
32:20
A Delaware statutory trust is a vehicle where you are putting
32:22
your money into an asset class where it's being managed by
32:25
somebody else. They can.
32:27
They can honestly have a couple of different types of assets.
32:29
It could be residential, commercial, industrial, but
32:31
essentially you are no longer in control.
32:33
The assets, it's being managed by a third party intermediary
32:36
for you and you're receiving a paycheck.
32:37
Do you still receive some of the benefits?
32:39
Absolutely, because you're an owner of an asset, but you're
32:41
able to roll 100% of your capital gains into ADST and
32:45
essentially become very passive. I like DSTS as well.
32:48
For a lot of older taxpayers that are sitting on real estate
32:51
that they don't want to manage anymore and they don't want
32:53
their children to inherit all of those types of assets anymore,
32:56
they'll 1031 into DSTS. Yeah.
32:59
And generally those are like a little bit lower return, but
33:02
it's a tax strategy, right? And, and I think some of the
33:05
downsides of those is like your money's a liquid, it's going to
33:07
be in there for a long time, but you don't have that tax, You
33:11
don't have the taxes that you're going to have.
33:12
To owe, correct. And now another opportunity that
33:14
you brought up was the opportunity zone, which when
33:18
somebody is hearing the word opportunity zone, you attach to
33:21
the word opportunity. That's the word you should
33:23
attach to the government is creating an opportunity for you
33:27
to avoid capital gains taxes, but you got to create an
33:29
opportunity for other people. So what they want you to do is
33:33
find a distressed area, deemed a distressed area due to
33:37
government standards. And distress can be in a number
33:39
of things, you know, Class C rundown area or just not a lot
33:44
of people currently live in that area.
33:46
But if you buy real estate in what's called a qualified
33:49
opportunity zone, and they can be in every state, by the way,
33:52
there's opportunity zones even in California and Florida, you
33:56
can roll over your gain on the sell of an asset.
33:59
And as long as you're holding onto the new asset for up to 10
34:02
years, you can completely avoid capital gains taxes associated
34:06
with the sell of your original asset.
34:08
And there's even stipulations to where you can avoid 15% capital
34:11
gains if you hold it for five years or seven years.
34:14
So there's a little bit of a waterfall.
34:16
But the opportunity zone has been leveraged since 2013 was
34:21
when it first got introduced. From what I remember is GO zones
34:24
and then it became Opportunity zones and Donald Trump made it
34:27
very popular with the Tax Cuts and JOBS Act in 2017.
34:30
Yeah, that's another great one for long term plays and also has
34:34
the flexibility if you do need to get out sooner, as long as
34:37
the, you know, manager will allow you to exit sooner and
34:41
still get that tax advantage. And I actually just to go back a
34:44
little bit on somebody. So like a client of mine is a
34:48
doctor, makes handful of millions a year from his
34:52
practice and his wife has real estate professional status per
34:56
the advice that I shared with them years ago.
34:59
And I know I just don't get paid for tax strategy like you do,
35:04
but I give it. But anyway, so yeah, he had his
35:07
wife qualify as a real estate professional status because she
35:11
can clearly work 750 hours a year in the business.
35:14
She doesn't have a full time W2 job anywhere else or anything
35:16
like that. And then they they buy
35:19
commercial buildings because he has a practice, so he actually
35:22
gets to rent the building from himself.
35:24
Self rental strategy. Exactly.
35:26
And then has other tenants that are cash flowing and then his
35:29
wife helps manage all the buildings that they own and they
35:31
just keep buying more buildings every year.
35:33
And of course I sell him all the buildings.
35:35
What if I told you his wife didn't need to qualify as a real
35:37
estate professional in order for him to depreciate the properties
35:40
against his active forms of income?
35:41
How? It's called the self rental
35:43
strategy. So underneath code section
35:45
469-4, you can make it a grouping election with an LLC
35:48
that you own 100% in an S corporation.
35:51
They will slow down. OK, OK.
35:53
All right, because. I don't know if I know this.
35:54
One, all right, let me teach you this one.
35:56
So First off, it's called the self rental strategy and it
35:58
typically works for doctors and physicians who have brick and
36:01
mortar storefront type of buildings that they're buying.
36:04
They have to own the building 100% and typically in a separate
36:07
LLC that they own 100%. So let's have their practice
36:11
over here be the S corporation. Let's have their building over
36:14
here, here be the LLC. They're renting from their own
36:17
building, which is an active business.
36:20
They're they're chiropractic business, their physician
36:23
business, their surgery business.
36:24
It's an active business and they're renting from their own
36:26
asset. The IRS allows you to make
36:28
what's called a grouping election where you can group 2
36:31
entities activities together. When doing this because he's
36:36
already an active him already an active participant as a doctor,
36:39
surgeon, dentist and he owns the investment property where he's
36:44
serving people as an active business owner, you can make a
36:47
grouping election under code section 469-4 called the self
36:50
rental strategy and depreciate 100% with a cost irrigation
36:54
study the asset against active forms of income.
36:58
This does not require you to track material participation
37:01
because if you're already materially participating in your
37:03
S corporation, you're deemed active by facts and
37:05
circumstances. So no need for wife to qualify
37:08
as a real estate professional. No 750 hours log booklet for
37:12
this property, this property, this property.
37:13
So we have some clients, it's actually here.
37:16
We work with some of the biggest surgeons and plastic surgeons
37:18
here in Arizona. They've done this strategy
37:20
multiple years in a row where we use our S corporation and we
37:24
made grouping elections with their commercial properties.
37:26
So I fully depreciated the commercial properties.
37:28
It flowed through on the tax return and offset of their
37:31
active forms of flow through K1 income.
37:33
And on a Schedule E it tells you what type of asset it is.
37:38
So you can choose residential, commercial, short term rental.
37:41
Self rental is number six on the schedule, on the Schedule E.
37:45
So we check the box as self rental and that strategy works
37:49
very well for him and works very well for a lot of our clients.
37:52
So definitely something I'd tell you to, you know, share with any
37:56
future doctors or physicians is, you know, it's great to qualify
37:59
the spouse as a real estate professional.
38:00
But if you do have a commercial building that you're using and
38:04
you 100% own it and you want own 100% of your corporation, you
38:08
can make a grouping election. If the ownership is off even by
38:12
a percent, it does not work. You have to have equal ownership
38:15
in both entities. But does that work though for
38:18
multiple buildings? Because like he only rents from
38:22
one? Like let's say they're only
38:24
running from one building, they don't have a practice in each
38:26
building. Then on any like let's say he
38:28
owns 20 buildings but he only rents one of them.
38:31
Can he only get and and his wife isn't real estate professional
38:34
status? Can he only get the 100% bonus
38:36
depreciation on the one that he actually rents and the other
38:38
ones he won't? That's correct.
38:39
You're absolutely right. And then that brings back real
38:42
estate professional status. Unless he expanded the practice
38:45
continuously and rented from each building in different
38:47
States and then they could depreciate them.
38:50
Yeah, absolutely. So let's say someone owns a
38:55
business and they go buy an office building.
38:58
When they get an SBA loan, they put 0% down, zero to 10%,
39:03
whatever, whatever their that person gets.
39:05
But anyway, let's just say they they buy an office building,
39:07
they get 100% financing on it and they have a pest control
39:11
company. If they go open more locations
39:15
around the country and they do the self rental strategy and
39:18
they're not a real estate professional, wife isn't a real
39:20
estate professional. Pest control, they can do the
39:24
bonus appreciation on every single building that they own
39:27
and buy buildings that have a multiple tenants in them as well
39:29
or just them as a tenant and use that against their income,
39:33
depreciate that against their pest control business income.
39:35
Yes, that's correct. They would make a grouping
39:37
election under 469-4. Nice, yes?
39:41
That's awesome. I didn't know that.
39:43
I knew I would learn something. Knew I would learn something
39:45
today. Yeah, that one got added to my
39:47
wheelhouse, I would say about 18 months ago from a good friend of
39:50
mine, Mark Kohler. Mark Kohler has been an attorney
39:53
in the tax space for over 40 years.
39:56
I believe he's in Utah. Really big personal brand, knows
39:59
all the same people that me and you know, but Mark does a lot of
40:02
teaching for advisors like myself.
40:04
And one strategy he wanted to make sure I knew it's like the
40:06
self rental strategies like Carlton, you have to use this.
40:09
I know you work with so many doctors, physicians and
40:11
surgeons. Mention this in your next
40:13
webinar and I dropped it in and Oh my God, I didn't realize how
40:16
many doctors that were, you know, in our database that you
40:19
know, could relate to a strategy like that.
40:21
Yeah, that's a really good one. That's super exciting.
40:25
But then we have all the doctors that are W2 that don't get to
40:27
qualify as real estate professionals, and so we have
40:30
another strategy for them. What's that?
40:32
It's a short term rental strategy.
40:33
OK. Have you heard of that?
40:35
Oh, yeah, OK. But this is not just for
40:36
doctors. This is for anyone.
40:37
Right. Yeah, This is for any taxpayer
40:39
that wants to be able to use active losses against active
40:42
forms of income without having to qualify as a real estate
40:44
professional. Perfect.
40:46
So getting into the W2 part of tax strategy and we've been
40:49
covering a lot of real estate professional status stuff.
40:53
So yeah, if you're AW2 earner, regardless of the profession,
40:56
yes, you can utilize the short term rental strategy.
40:59
Yeah, when you're self-employed or W2, you can use the short
41:02
term rental strategy. You know, it's funny because in
41:04
1986 when the Tax Reform Act came out and we had all this
41:08
passive activity loss rules get introduced for the first time.
41:11
I, I was studying the tax code, you know, probably in 2016,
41:15
2017. And I was starting to think, you
41:17
know, how did the IRS view Airbnb and VRBO when passive
41:21
activity loss rules were rolled out in 1986?
41:25
Not in 1987 years ago, years ago when Airbnb and VRBO wasn't
41:30
introduced until about 2011, 2013.
41:34
So right around this time period, I went back into the tax
41:37
code to read the passive activity loss rules.
41:40
And what I realized is that if you had what's called a
41:42
transient business, it wasn't viewed as a real estate
41:47
operation. And the IRS called a transient
41:50
type of business, being a business where customers are
41:52
coming in and out every seven days.
41:55
So in my mind, in 19861987, what they were trying to describe in
42:00
the tax code was how to treat hotels and motel like
42:03
businesses. Those are transient businesses
42:05
where customers and guests are coming out every, you know, day
42:08
or two or five, 6-7 days at a time.
42:11
Well, Fast forward to 2017, 2018.
42:14
We have everybody talking about Airbnb and VRBO now.
42:17
Well, how does the tax code treat Airbnb and BRBO?
42:20
Well, if you run your Airbnb and VRBO like a transient business,
42:25
meaning your guests are staying in the property seven days or
42:28
less and you're active, you materially participate.
42:31
Material participation says you spend 100 hours in your
42:33
operation and no one spends more time than you.
42:36
You have an active rental property.
42:38
You can perform a cost segregation study on it.
42:40
You can accelerate depreciation. Well, I got on YouTube right
42:44
around 2020 and first couple things I talked about was LLCS
42:48
and then right after that I went directly into short term
42:50
rentals. That's I believe that's why we
42:53
got to 1,000,000 so fast, because there were so many
42:55
taxpayers that have been told by their CPA's or their
42:57
accountants, sorry, there's nothing you can do.
42:59
Sorry, you can't use real estate to offset your tax bill until
43:02
now. There is a way in which you can
43:05
use real estate. It's not a loophole.
43:06
It's been written in the tax code since 1986 and no one just
43:09
viewed properties like this. Airbnb and VRB OS are hotel
43:13
motel like businesses. You are turning over the bed,
43:16
you're you're providing maintenance when at a request,
43:20
and you're going to go fix toilets when you have to, even
43:22
if it's a handyman. You are running an active
43:25
business and the IRS will allow for you to take depreciation
43:28
against your W2 or 1099 income if you can show the IRS that
43:31
you're spending 100 hours and that your guests are staying in
43:33
the property seven days or less on average.
43:36
And it's 100 hours a year. It's 100 hours a year.
43:38
Yeah, which is not a lot of hours.
43:40
Oh, no. So what I teach people to do is
43:42
why don't we close escrow in October?
43:43
I work that in a week. Get it done in November,
43:46
December, you're, you know, making a decision on whether or
43:48
not you want to convert it to a long term rental January 1 and
43:51
then boom, you've already gotten your cost segregation study,
43:53
already got your active participation.
43:54
You logged your time in your log booklet.
43:56
We filed the tax returns in the following year.
43:58
Can be an LTR and you just add it to your portfolio and you go
44:01
find your next STR. So I, I actually have another
44:05
real estate client that does the same thing.
44:08
He makes a lot of money in pharmaceutical sales, but it's
44:11
W2 meal Commission plus bonus, stuff like that.
44:14
It's not 1099. And that's exactly the strategy
44:17
that he uses. And he has this big Airbnb
44:20
portfolio and he manages them while he does his other job.
44:23
And he's able to write off all of that my, cuz he makes, you
44:26
know, well over 7 figures on pharmaceutical sales.
44:29
And that's the exact strategy that he used to basically
44:32
compound as well, to not pay taxes.
44:34
What I would do even on top of that, depending on his
44:36
circumstance is if he's a managing the property himself
44:39
because the IRS says you have to manage the property yourself and
44:42
more than any other person. One of the other strategies we
44:44
can look at, Hannah, is rather than just having an LLC to hold
44:47
the property, what if I sell, set up an LLC to manage the
44:49
property too, and I put you underneath that LLC, you can get
44:53
paid for managing your own asset, which is another tax
44:55
deduction instead of hiring an outside property manager.
44:58
And then now that vehicle that was sitting in your driveway
45:00
that was not a business vehicle can all of a sudden become a
45:02
business vehicle because you're driving to Tempe once or twice a
45:05
week to go check on your property.
45:06
That's your Airbnb. So it's a way in which we can
45:09
turn around and convert your lifestyle into more of a
45:12
business. If you're managing your
45:14
properties, maybe I have your children work with you in the
45:17
real estate management company. Government allows for us to pay
45:20
children up to $16,100 without them needing to file a tax
45:22
return. It'd be pretty nice to give your
45:24
child a tax deduction for helping you in the family
45:26
business, right? Not to mention, and if you're
45:28
managing the property from the convenience of your home, maybe
45:30
we take a Home Office deduction. So these are just additional
45:33
deductions we can include by you all of a sudden becoming a
45:37
landlord. I love it, yes.
45:38
And what about the Augusta rule? The Augusta rule is amazing.
45:42
So the Augusta rule became famous because of the Masters
45:45
tournament in Augusta, GA. There wasn't enough hotels for
45:48
people to rent out, so landlords would turn around and open up
45:51
their houses and would charge people ten $15,000 a day.
45:55
Yeah, homeowners would open up their houses and charge people
45:57
sometimes ten $15,000 a day to stay in their houses in Augusta,
46:00
GA. Well, the city of Augusta love
46:02
this. And they created a law that
46:03
stated you can rent your house for up to 14 days without
46:06
needing to pay any taxes on the rental income.
46:08
But that was at the state level. A year later it got lobbied at a
46:11
federal level and became a tax law code, Section 280 A, which
46:15
states that any taxpayer can rent their home for up to 14
46:19
days without having to claim rental income.
46:21
Business owners love this strategy because business owners
46:24
have business entities, LLC's as corporations, which is
46:26
technically a separate individual from them.
46:29
So if you own your own primary residence, you can create a
46:32
leasing agreement between your corporation and your and you,
46:35
the individual that owns your primary residence and rent your
46:37
house to your business for up to 14 days completely rent free.
46:42
What you need to make sure is that you're getting the fair
46:44
market value of what your house would normally rent and getting
46:47
some comparable rates and documenting what you're actually
46:50
doing that is business related that you're conducting inside of
46:52
your home for those 14 days. But it's an amazing strategy.
46:55
I've seen taxpayers save anywhere from 10,000 upwards to
46:58
$25,000 simply by renting their house to their business.
47:01
Do you have to with the Augusta rule?
47:04
Do you have to actually pay the rent out of the business into
47:08
you do have to make that transaction?
47:10
There needs to be a bona fide transaction that is happening.
47:12
Yes, there it is. You need to move money from your
47:14
business account to your personal account.
47:16
What we like to do is we like to write checks.
47:18
Checks are very traceable. It shows me when the date, what
47:20
the check was signed for and it's specific to the date you
47:24
rented your house. So if you're doing, you know,
47:27
the 14 days all back-to-back to back-to-back to back, which I
47:29
wouldn't recommend you would really be intentional with
47:32
business 14 days in a row, then I would recommend having a check
47:35
for each one of those days. You're going to write yourself a
47:37
check for each one of those days.
47:39
That's 14 separate checks that you're showing documentation
47:42
around for renting your house to your business.
47:44
Right. And so and then you expense it
47:45
out of your business entity and then you don't have to claim the
47:49
income in your personal, personal.
47:51
So it just becomes a business expense.
47:52
It's a business expense. I love doing the Augusta Rule
47:55
here for my clients during the Waste Management golf tournament
47:58
because all of the fair market value rents rise up
48:02
substantially. One of our clients was able to
48:04
rent his house to his business for $3500 a day for 14 days just
48:09
because we timed it out during the Waste Management golf
48:11
tournament. It's one of the benefits of
48:13
being able to do the Augusta Rule.
48:14
Yeah, we have all the things here, the the Barrett Jackson
48:17
and the Waste Management and the Arabian Horse Show and a lot of
48:21
big events. Yeah, that's OK.
48:23
So that's a good one. The Augusta rule.
48:25
What about I want to talk about trust, like asset protection and
48:34
when when you have a portfolio and when you die, I want to
48:38
learn about how to prevent taxes for your heirs.
48:43
Yeah, absolutely. So one of the big conversations
48:47
that starts to happen the closer and closer and closer you get to
48:50
having Gray hair is how are you going to protect your estate?
48:53
And the conversation will come up, depending on how wealthy you
48:56
are, is will your heirs have to pay estate taxes?
49:00
There's a exclusion which is typically around 15 to 20
49:04
million if you're single, upwards to about 40 million if
49:07
you're married filing joint. Don't quote me on the exact
49:09
amounts, but we can definitely pull it up.
49:11
But what that means is, is that if your estate is over those
49:14
amounts, your heirs are going to pay estate taxes, which is at
49:17
40%. It is not 25%, it's not 30%.
49:20
It is 40% estate taxes. So what many people will start
49:25
to do is they'll start deciding, OK, how much assets do I want to
49:28
keep in my own individual name or associated to my revocable
49:33
living trust, a trust that I can revoke at any time.
49:36
I can go in, I can put stuff in. I can go in, I could take stuff
49:40
out. This revocable trust is really
49:43
nice because it allows for my children to get a step up in
49:46
basis on all the assets that I put inside of here.
49:48
So if I have real estate that I bought for $500,000 and now it's
49:52
worth $2,000,000, my children will get a step up in basis,
49:55
meaning that property is stepped up to $2,000,000 and they can
49:58
sell that asset for 2,000,000 without paying any capital gains
50:01
taxes. That is pretty awesome.
50:03
But the issue is, is that if you have so many assets inside of
50:07
your revocable trust, you might push past that estate tax
50:10
exclusion. So This is why some investors
50:12
and taxpayers will start looking at the irrevocable trust.
50:15
They'll start getting assets completely out of their estate,
50:18
into an estate that is irrevocable that's going to be
50:21
passed on to a beneficiary. The reason why the irrevocable
50:24
trust is so beneficial is because it is excluded from
50:27
estate taxes, which means if I assign things over to the
50:30
irrevocable trust, right as I'm crossing that 40 million, well,
50:34
I'm not going to have to worry about estate taxes for my heirs.
50:37
Anything I put in the irrevocable trust so I can have
50:40
both of these trusts. What's the difference?
50:42
The irrevocable, my children don't get a step up in basis on
50:44
these assets replicable. They do get a step up in basis
50:47
on these assets. So I have to do estate planning
50:51
to decide what assets do I want my children to receive a step up
50:54
in basis and not pay capital gains taxes on legacy assets
50:57
versus what assets do I want them to never pay taxes on that
51:00
they're going to keep forever legacy assets over here in
51:03
irrevocable trust and avoid taxes on the estate side.
51:07
Oh OK so I have one and I just don't understand how they work.
51:12
I have an irrevocable and a revocable trust and I'm still
51:15
confused by the whole thing. So you just said in your
51:19
irrevocable trust, if you were to sell those assets, they have
51:24
a 40%, they would get taxed 40%? No.
51:28
So if you if you are going to pay estate taxes, it's because
51:34
the family members who left you their estate had so much in
51:37
assets that you are now in a position to where you're paying
51:41
estate taxes. And that that exemption amount
51:44
is somewhere around 40 million, meaning 40 million or less
51:47
you're not going to pay estate taxes.
51:49
But above 40 million is essentially when you are going
51:51
to pay estate taxes and estate tax rates are at 40% is.
51:55
This either irrevocable or revocable.
51:57
Yeah, this is no matter what. Regardless, so if it's over 40
52:00
million. Yeah, you die.
52:02
Oh, sorry, sorry. If you're, if you're in an
52:03
irrevable trust, if you're in an irrevocable trust and your
52:07
estate exceeds 40 million, the assets that are in the
52:09
irrevocable trust can avoid the estate taxes.
52:11
The assets that are in the Revocable trust will be a
52:13
subject to estate tax. Gotcha.
52:15
OK. That's what I thought.
52:16
But if it's 40 million or less, they get to step up in basis and
52:20
they don't have to pay taxes if they sell those assets.
52:21
Correct. Through a replicable trust,
52:23
yeah. That's correct.
52:25
I will they, will they? Speak and please speak with your
52:28
attorney. I am not attorney.
52:29
I will preface this, I am not attorney and this is not legal
52:31
advice. But yes, please speak with your
52:33
attorney. OK.
52:35
And then on the irrevocable trust, so why you said it on the
52:40
irrevocable trust, you don't get a step up in basis.
52:43
So the irrevocable trust, you don't get a step up in basis,
52:45
but you're taking assets out of your estate, excluding them from
52:48
the estate tax exemption makes sense.
52:51
So if I have 100 million in assets, anything over 40 million
52:55
is going to be taxed at 40%. So what if I take 60 million and
53:00
put it in an irrevocable trust out of my estate, making my
53:03
beneficiaries able to receive this?
53:06
I've taken it out of my state while I'm living.
53:09
While I'm living irrevocable, I cannot read, go back in and make
53:13
changes to that. I don't own it anymore.
53:15
I'm just controlling it now. So when my heirs receive the
53:19
assets from the irrevocable side, they should not pay any
53:21
taxes on this. And because I kept it right
53:24
underneath that 40 million on the revocable side, anything in
53:26
this side, they're going to get the step up and basis on.
53:28
Makes sense. But the 60 million over there,
53:31
they're not going to get step up and basis on any of the assets I
53:34
put over there. They're going to avoid taxes
53:37
though, see what I'm saying? Yeah, but why would the step up
53:41
and basis matter if you don't? Pay taxes?
53:44
Exactly. So it doesn't matter.
53:46
But you would want step up and basis on some assets depending
53:49
on the types of assets you may have purchased.
53:51
So you might be like, OK, I want my children to sell these
53:55
because I bought these. So when I was so young, Oh my
53:58
God, the state of Ohio was literally like in shambles when
54:01
I bought these thousand units over here for $98,000 each.
54:05
Each one of these units are now 1,000,000 bucks.
54:06
So I'm going to leave all of these in my Revocable living
54:09
trust. My children are going to sell
54:10
these assets. They're going to have any
54:11
capital gains tax. They're just going to be
54:13
completely, you know, set, but then all of these assets over
54:17
here, if they were to sell these assets, they're going to have to
54:20
pay, they're going to have to pay the debt on these assets so
54:24
they don't get stepped up in basis over here.
54:26
But because I removed it out of the estate, they don't have to
54:31
pay 40% on 60 million. Now you're avoiding it, but you
54:36
still have to pay the debt associated to this over here.
54:39
Does it make sense? Yeah.
54:40
And if those assets are sold and they were acquired for 90,000
54:45
and they're going to be sold for 90 million, they're going to
54:48
have a long term capital gains. Yes, you would.
54:50
So you're going to be 20%, yes. Yeah, but let's just say I kept
54:53
all 100 million over in the Revocable Living Trust.
54:56
What's the issue with that? Well, 40 million is excluded.
54:58
So 40 million of the assets will will be excluded from capital
55:03
gains tax. My children will see will
55:05
receive the step up and basis, but now the 60 million is
55:08
subject to 40% come due next year when you go to file your
55:11
tax returns. Which means now you're in a
55:13
situation where you're grieving over the fact that your mom or
55:15
dad just died, and now you're left with estate taxes to deal
55:18
with and you have to go sell their assets to cover the estate
55:21
taxes. You don't have.
55:23
You're not liquid, so even though you got to step up in
55:25
basis, you're not liquid. So you have to sell the assets
55:29
to cover your estate taxes. This asset situation, what if
55:31
your mom was like, I'll just move some of this over into the
55:34
irrevocable trust so she doesn't have to worry about the 40%
55:37
taxes on this. She just manages those assets
55:40
and then these ones over here, she's getting the step up and
55:41
basis. And they keep those assets, they
55:43
keep cash flowing those assets, but and then they could sell
55:48
them the if they did sell them, could they still 1031 exchange
55:53
them out of that trust and avoid the capital gains?
55:58
If the property is being held for investment purposes and you
56:00
are purchasing a new property that's equal or greater in
56:03
value, then yes, you can perform an IRC 1031 exchange.
56:06
Right. So they can't just cash out and
56:08
have no taxes in the irrevocable trust.
56:11
OK, that makes a lot more sense. And I know where you're not a
56:14
legal person, but I know there's different legal protect asset
56:17
protection strategies that are different between the two.
56:20
But for today's topic, we're talking about the tax advantages
56:23
or disadvantages, yes. And then there's sometimes where
56:26
people will set up like a slat A spousal lifetime access trust
56:28
for married individuals. So that way in this irrevocable
56:31
trust, because it's set up as a spousal lifetime access trust,
56:34
your spouse has the ability in your joint lifetime to access
56:38
funds inside of the trust for maintenance related, releasing
56:41
related related related reasons, health emergencies, maintenance
56:46
service services you need to pay for.
56:48
They call them hymns, but essentially you're able to pull
56:50
money out of the irrevocable trust while you're living.
56:53
Your spouse is to be able to, you know, pay for certain levels
56:56
of expenses for the family and the operation of the family out.
56:59
Of the irrevocable. Trust out of the irrevocable
57:01
trust, and that's called a spousal lifetime access trust.
57:04
Again, I'm not an attorney. I want to preface this.
57:07
I sound extremely smart when I'm sometimes talking about this
57:09
estate planning stuff. I am a tax professional when it
57:12
comes to estate planning. You do need to speak with an
57:13
attorney, yeah. Yeah, Yeah.
57:15
OK. So, OK.
57:17
So we covered trust step up the basis difference between
57:21
irrevocable and revocable trust. What about South?
57:24
One of my mentors is a billionaire and he became a
57:26
billionaire by creating insurance products specifically
57:30
targeting how to produce taxes for big very wealthy people and
57:35
very big corporations. And so he invents products,
57:38
right. Insurance products specifically
57:40
for tax strategy. I should connect you to actually
57:44
amazing beast. Yeah, his his, I think he built
57:48
and sold the largest like life insurance company in the entire
57:51
country of Canada or something like that.
57:52
It's it's crazy. That's impressive.
57:54
Yeah. Yeah.
57:55
But anyway, so I'm very lucky to to have him as a mentor in my
57:58
life. And he just invented a new
58:01
strategy. And I was watching your videos
58:04
last night prepping for our podcast and you had talked about
58:07
something that was different, but it was very similar and I
58:10
really loved it. So talk about the five O 3C.
58:14
Yeah, OK. 5O1C Threes private family foundations. 5O1C3.
58:20
Yeah, 5O1C3. So if you set up a non a non for
58:23
profit, you're essentially setting up A5O1C3, which is
58:26
pretty cool. A lot of my clients like to set
58:28
up private family foundations because they want their family
58:30
members involved in in philanthropy.
58:33
So what they'll do is they'll roll over 30% of their cash
58:36
assets into the private Family Foundation for a tax deduction.
58:39
30% of their adjusted gross income can be rolled into a
58:43
private Family Foundation for a tax deduction. 5% of the
58:46
charitable assets have to be donated to another qualifying
58:49
5O1C3 charity or organization. So let's just say I put in
58:52
$100,000 into my private Family Foundation.
58:54
I'm going to have to write out a check to $5000 to the YMCA or to
58:57
the church. That's completely fine.
59:00
So the 5% does have to go to an outside organization.
59:03
Yes it does. Yes it does.
59:05
But what's cool is there's a little bit of a calculation
59:08
taken into consideration, such as the 5% also factors in your
59:11
administrative cost. So if you had to pay for your
59:13
taxes and legal fees, it actually comes out of the 5%,
59:17
believe it or not. So you might not actually end up
59:20
writing a check for, you know, actually the 5% amount.
59:24
It could be a little bit less relative to the expenses
59:27
associated with running the private Family Foundation.
59:29
What many of these wealthy individuals do with these
59:31
foundations, Hannah, is they're not just parking money into
59:34
these foundations. They're parking precious metals,
59:37
gold, artwork, silver, anything that has value because they can
59:42
get a tax deduction for it as long as it is appraised
59:44
correctly. And then they're turning around
59:47
and using their foundations to create influence.
59:49
They're going to put on events, fundraisers, parties and bring
59:53
in the types of people that they want to network with and allow
59:56
for the funds inside of the foundation to do the
59:58
philanthropic work that is needed.
1:00:00
Sometimes philanthropy isn't always about.
1:00:04
You know, creating like a water well or giving books to the to
1:00:07
the homeless. Sometimes it's just about
1:00:08
getting the most prominent people together to all discuss
1:00:11
an idea, right? And so you can use your private
1:00:14
Family Foundation to create these events, to create these
1:00:17
fundraisers, to create these galas, to get wealthy people
1:00:19
together, to get movers and shakers in the economy together
1:00:23
to all go and solve a mission. And so I've seen a lot of
1:00:26
events, you know, where there's, you know, certain cars or, you
1:00:30
know, Vu Clicko sponsored events.
1:00:32
And the foundation is putting the entire event on to be able
1:00:36
to come up with that even bigger, deeper philanthropic
1:00:39
activity. OK, so the benefit here is that
1:00:42
you can take and you don't. This has nothing to do with real
1:00:44
estate, whatever your earned income is, right?
1:00:47
You could be W2 or business owner.
1:00:49
OK. You can take 30%, up to 30% of
1:00:54
that earned income. So you make $1,000,000, you can
1:00:56
take up to $300,000 and put that into a charitable trust
1:01:00
foundation. 5% of that you have to donate really to the outside
1:01:05
organization. So that is a cost off the top.
1:01:08
So the additional 25% is ultimately a tax deduction.
1:01:12
That's correct. Yep.
1:01:13
OK. And so that saves you if you're
1:01:15
at a 50% tax bracket, well, I'm not going to be able to do that
1:01:18
math in my head real quick, but that that saves you.
1:01:21
Let's just say you are at a million in taxable income.
1:01:26
You write a check for $300,000 to your private Family
1:01:29
Foundation. You're in a 37% federal bracket
1:01:32
and then you have state taxes pushes up to 45 percent. 45% *
1:01:37
300,000 you'll you'll end up saving $111,000 in taxes.
1:01:41
Very good. That was fast.
1:01:42
That was good, $111,000 in taxes from doing that.
1:01:46
And then you can actually spend that money in your charity to
1:01:49
create more opportunities and impact.
1:01:51
That's correct. Yeah.
1:01:52
That's really cool. Yeah, the insurance invention,
1:01:57
I, I don't even think it's finalized yet, so I don't even
1:02:00
know how much I'm supposed to talk about it.
1:02:01
But ultimately it's a similar concept, but it's done through a
1:02:05
insurance policy. And so instead of having to
1:02:08
write the $300,000 check right away because that hurts, right,
1:02:12
you buy the policy and you pay a monthly premium and then you can
1:02:16
borrow against it at 95%. So you actually only have a 5%
1:02:20
outlay of cash? Wow.
1:02:21
And this is a charitable donations. 60% of your earned
1:02:24
income. OK.
1:02:25
Yeah. So you can do 30 to 60%
1:02:27
depending on the type of donation that you're making with
1:02:29
these private family foundations.
1:02:31
That's really cool. I would definitely be interested
1:02:33
in learning a. Little bit more about that.
1:02:35
Yeah, it. Keeps you more liquid.
1:02:37
Right. And so for me, I'm going to have
1:02:39
like a, you know, D7 figure recapture coming up and you got
1:02:46
to kick down the road, right? Like I'm like, I don't want to
1:02:48
have $1,000,000 tax bill next year.
1:02:51
That does not sound fun. So, so this strategy can be used
1:02:58
to offset depreciation recapture.
1:03:01
So for me, I, I could go buy another piece of real estate,
1:03:04
which I probably will do or invest into.
1:03:08
That's another thing too. People think they have to buy
1:03:11
their own assets. You can also invest as a passive
1:03:13
investor into a fund. If you're real estate
1:03:15
professional status and you have active real estate business.
1:03:18
You can also diversify and invest into a syndication or a
1:03:21
fund and still get the pass through depreciation.
1:03:24
And some fund managers, like one of my clients right now who I
1:03:26
invest with, he is doing a 1 1/2 to one depreciation.
1:03:32
I like that. So like if you invest
1:03:33
$1,000,000, you get 1,000,000 1/2 depreciation and it's
1:03:36
completely passive. You don't have to go buy your
1:03:38
own asset. You don't have to manage the
1:03:39
property, you don't have to renovate it and do all that
1:03:41
stuff. So that's a really cool strategy
1:03:44
too. Because like for me, I really
1:03:45
want to focus on my businesses. So I've been selling off some of
1:03:48
my assets and rolling that money into more of a passive
1:03:51
investment. But I'm still a.
1:03:53
You're still a Rep, you still get all the losses that you can
1:03:55
use against your active forms of income.
1:03:56
One of the strategies that I utilized last year as I put 700
1:04:00
grand as AGP actually into a gas station fund and we own 6 gas
1:04:06
stations in Texas. The reason why I like gas
1:04:09
stations is because gas stations depreciate on a 15 year
1:04:12
depreciation schedule, which means I don't need to do a cost
1:04:15
irrigation study. I got 100% bonus depreciate the
1:04:17
entire gas station in year 1. So when you said your strategy
1:04:21
is a 1 to 1.25, mine's A1 to 2.5 X.
1:04:24
So for every $100,000 I put in, I'm getting $250,000 out in
1:04:28
depreciation. So yeah, I put 700K in and I got
1:04:32
a pretty fat K1 coming to me loss.
1:04:34
And gas stations pay very, very nice returns.
1:04:38
I will tell you that the fund managers who are in the gas
1:04:40
station space have been in the gas station space for forever.
1:04:43
Gas stations are like, if you know, you know, type of business
1:04:46
people all know each other, that's super family oriented.
1:04:49
But we got with a fund manager that has been operating this gas
1:04:52
station fund since 2009. And so they've been in the space
1:04:56
for quite some time. And a lot of my clients got into
1:04:59
it as well, that we're real estate professionals, and it was
1:05:02
a nice sizable loss on the tax return for us.
1:05:04
That's amazing. I need to get connected with
1:05:06
them. It is funny that you say that
1:05:07
because now I think if I'm like I don't know, I know like 2 gas
1:05:11
station operators you know, and I have a.
1:05:13
These gas stations everywhere, so it's like.
1:05:16
Who are? These people are operating
1:05:18
these. Yeah, like they must be really
1:05:19
good old boys, very tightly. Know a lot.
1:05:23
Very tight net. Yeah, I went to three due
1:05:26
diligence conferences and it is old people suit and tie boring
1:05:32
slideshows. But once they put out the
1:05:34
diagram, they're showing you the depreciation and the cash flow,
1:05:36
your eyes start to widen. You're like, oh, now this is
1:05:39
what it's all about. And you know how to read a
1:05:41
performer. You've underwritten deals.
1:05:43
It's it's really cool being able to see the type of returns you
1:05:45
can get relative to the amount of money you have to put up.
1:05:48
So. Yeah, 2 1/2, that's really nice.
1:05:52
I might. That's another opportunity that
1:05:53
I could do with the recapture. Yeah, I can give you a four to
1:05:56
one. How?
1:05:57
OK, I literally was just asking because yes, OK.
1:06:01
You want to talk 4 to 1? Yep. 4.
1:06:03
To 1/4 to 1 is through my company, we have IRC 181 as a
1:06:08
strategy. Now, I want to make sure I
1:06:09
preface this because when somebody hears this, they're not
1:06:12
going to fully understand it on the first go round.
1:06:14
So I want to make sure I really speak this concisely.
1:06:18
IRC 181 is a tax code for movie production companies.
1:06:21
It allows that. It allows for a movie producer
1:06:24
to produce a movie in the United States that is 20 million or
1:06:27
less and right off the entire production cost.
1:06:30
Cool. Well, I want to invest in movie
1:06:32
films, but I don't want to be on set and have to worry about the
1:06:35
cameras and the angles and everything like that.
1:06:37
I just want to be an owner in a movie film.
1:06:38
Can I invest money into a movie film?
1:06:40
The answer is yes. These production companies sell
1:06:43
or finance the production rights to investors.
1:06:48
They're creating a loan. And because it's a loan, just
1:06:51
like when you buy real estate or you buy a vehicle, the loan
1:06:54
amount plus your at risk capital, your down payment is
1:06:57
deductible. When you put $100,000 down into
1:07:00
a movie film, you're taking on $300,000 of recourse debt for to
1:07:05
be whole on $400,000 of an investment, you get to write off
1:07:08
$400,000 on your tax return with $100,000 investment, $1,000,000
1:07:12
investment gives you a $4 million loss.
1:07:14
Why is it considered an active investment for you?
1:07:17
With movie films, IRC 181 requires their investors to to
1:07:21
materially participate. Material participation in movie
1:07:24
films is you watching other movies.
1:07:30
Netflix, Amazon Prime, I am not kidding.
1:07:33
If you can show that you understand the types of movies
1:07:36
that you're investing in, then you can make investments into
1:07:39
movies. The only way you're going to
1:07:41
understand what type of movie you're going to invest in is if
1:07:43
you spend time watching other movies.
1:07:45
Maybe you think dramas are going to do really well in 2026 or
1:07:48
comedies are taking a hit right now, so you're going to want to
1:07:51
go study some comedy movies. So you're a logging material
1:07:54
participation hours of you studying and watching other
1:07:57
movies. Then when we allow for clients
1:07:59
to go through this process, we open up an investor portal where
1:08:02
they'll be able to see all the screenplay, get be able to
1:08:04
review all the actors, the documents that are going into
1:08:07
the script. They're essentially reviewing a
1:08:10
movie before a movie actually gets fully produced.
1:08:13
That's more hours that you're logging for material
1:08:15
participation. IRS requires that you spend 100
1:08:18
hours and that no one materially participates more than you when
1:08:21
it comes to this type of investment.
1:08:23
So everyone in the investment has to materially participate
1:08:25
exactly 100 hours. There's a third party auditor
1:08:28
that audits all material participation log booklets and
1:08:31
everyone manages their own hours for 100 hours.
1:08:34
You receive AK1 on your tax returns giving you a loss and
1:08:38
the movie can cash flow whenever it gets produced.
1:08:40
Typically you're looking at somewhere between 15 upwards to
1:08:43
about 25% return on your money. I put money into the movie
1:08:48
Flight Risk Mark Wahlberg movie last year.
1:08:50
I put money into Wish Dragon 2 Jackie Chan movie last year and
1:08:53
there's a few other movies and screenplays that our clients
1:08:57
have access to. That's amazing.
1:08:58
Yeah. So that was a four to one.
1:09:00
OK. But then, you know, with all
1:09:03
these things, right, you get the depreciation, you get the
1:09:05
numbers, the tax advantages, all the things.
1:09:08
But there's also still a risk that you lose the money, right?
1:09:12
So that's the biggest fear beyond who's offering the most
1:09:15
appreciated. This is why I don't even offer
1:09:16
strategies like this to somebody who's not making $1,000,000.
1:09:19
Yeah, like what makes the most sense for you when you're under
1:09:22
1,000,000 versus over a million, right?
1:09:24
These types of plays that you and I are talking about, I'm not
1:09:26
offering this to a taxpayer that's making 300K, right?
1:09:28
Like show me your investment portfolio first, right?
1:09:31
Show me, show me that you've done the hard work, you've
1:09:34
gotten into the boring, the tried and true stuff first
1:09:37
before you come get into these alternative investments because
1:09:40
these alternative investments make you illiquid and they have
1:09:42
higher risk, higher risk tolerance.
1:09:44
And before we go into this world, I want to make sure you
1:09:46
mastered the world that's been here for quite some time.
1:09:49
I mean, real estate's been here since before Jesus.
1:09:51
So I want to, I want to see you get into real estate first.
1:09:54
Yeah, real estate's the best. And I've always doubt, you know,
1:09:56
I'm an investor. That's what I do.
1:09:57
I've been an investor. So I was day trading at 18 years
1:10:00
old, you know, how did that go? Not good, not good at all.
1:10:04
I tried day trading for a week, Sucked at it.
1:10:07
Yeah. And then I thought, you know,
1:10:09
maybe it's my, maybe it's my ego.
1:10:10
I just, I'm not putting enough money in.
1:10:12
And then, yeah, that's when you start snowballing a little bit.
1:10:15
My brother will also make fun of me about this story because I
1:10:18
was 18 years old and I had saved up $20,000 from training horses
1:10:22
and babysitting by the time I graduated.
1:10:25
And I started a day trading account and I lost like $3500 in
1:10:30
2 minutes or less. And I was staring at my computer
1:10:33
bawling my eyes out like screaming, so stressed out.
1:10:37
My brother had diarrhea for three months, but we were both
1:10:40
day trading and he was like, I think I'm dying.
1:10:42
I don't know what's wrong with me.
1:10:43
And he went to the doctor and he's like, it's just stress.
1:10:46
Like you got to stop doing whatever you're doing.
1:10:48
But yeah, don't recommend day trading.
1:10:50
Now I have a friend that I'm trying to convince to let me
1:10:54
work with them. We're, we're figuring, figuring
1:10:56
that out legally right now, but he has built very, very, very
1:11:02
high return day trading algorithms with AI now.
1:11:06
And the AI does everything. And there's No Fear and greed in
1:11:08
AI, no emotional training and it and it, and it can trade in up
1:11:13
or down 24/7. And it's incredible.
1:11:16
Like the, the returns that he's shown me that he's been
1:11:19
consistently getting for. And then he, even when he
1:11:22
developed it, he had the AI run its model on the chart for the
1:11:28
past three years of the chart, see if it would have been
1:11:31
correct on its predictions. And it was correct like 97% of
1:11:34
every trade, which I'm like, if this is true, you know, and it
1:11:38
like, anyway, it's too good. It sounds too good to be true.
1:11:42
And I'm sure at some point it'll get convoluted or what not, but
1:11:45
it is pretty exciting. Like in the trading world,
1:11:47
there's a strategy now just to be like these really smart IT
1:11:50
people in these coders. And I know a lot of them because
1:11:52
I was an engineer, are building these models to to make big
1:11:55
returns, but you don't have any tax strategy.
1:11:57
Yes, you don't. You're just claiming capital
1:12:00
gain income. Short term capital gain income
1:12:02
is ordinary income for you because you're closing out of
1:12:04
trades in seconds. Yeah, I've been doing algo.
1:12:07
I've been doing algorithmic trading.
1:12:09
I have a friend named Jeff Seconder.
1:12:10
He runs this company. Called, I know.
1:12:12
Yeah, he knows nerp and yeah, I've been using his algo trading
1:12:16
for like 18 months. It's been incredible returns.
1:12:18
I don't think I can talk talk my returns, but yeah, they're very
1:12:22
solid returns per month. But you just kind of have to
1:12:25
monitor it. We'll go through these like
1:12:26
weird periods where like, I don't know, we're bombing
1:12:29
freaking Iran or something. And next thing, you know, like
1:12:32
you got to go in there and everything's in the red.
1:12:34
So it's just, you know, sometimes, you know, we, we, we,
1:12:38
we build a muscle where we're like, OK, we're taking care of
1:12:40
and then something happens and makes you second guess
1:12:42
everything. So I like algorithm trading, but
1:12:44
I'm not putting all my ducks in that basket.
1:12:46
I would say about like 5 to 7% of my liquidity is in algo
1:12:51
trading right now. Yeah, that's what I do too.
1:12:53
Like crypto, you know, certain stocks, things like that.
1:12:57
I keep the smaller percentage, but I still play in it.
1:12:59
And mostly for me, I've just never done well in stocks. 1
1:13:02
you, you can't use margin in a Safeway, you can use margin, but
1:13:06
like in real estate, you put down 20%, you get to buy a much
1:13:09
bigger asset. You get the depreciation, the
1:13:11
tax advantages and you get the cash flow.
1:13:13
And it appreciates with inflation over time, so many
1:13:16
advantages and stocks, you have zero advantage.
1:13:19
Like you just you have to put the money in however much you
1:13:22
want to invest. That's what you get.
1:13:23
You're not getting margin on it. Again, in a Safeway, you can do
1:13:26
margins and that's how people go bankrupt and kill themselves.
1:13:29
But and then you don't get the tax advantages.
1:13:32
You're driven by fear and greed. It's like, so I like a liquid
1:13:35
things because then I can't emotionally sell them.
1:13:38
You know when things. Are down, it favors my
1:13:40
personality to have more illiquid things and I would
1:13:44
highly recommend that many, many taxpayers investors really kind
1:13:49
of study their risk tolerance. I did not do well in the stock
1:13:52
market early in my 20s I and it's because I was trying to
1:13:56
time the market. I would put money in Apple, I'd
1:13:57
take money out of Apple. I'd put money in the Tesla.
1:13:59
I'd take money out of Tesla. The moment I got into real
1:14:01
estate, everything just started to make sense.
1:14:03
I can see my well building. I couldn't go touch it.
1:14:05
I couldn't take the money out. It was boring and it was truly
1:14:09
happening for me. For most people, stocks is not
1:14:12
going to make sense until you've gotten super, super disciplined
1:14:16
and it takes time to get super, super disciplined.
1:14:18
You're going to go in there and feel the fear.
1:14:20
You're going to go pull money out.
1:14:21
You're going to dollar cost average and abort your dollar
1:14:24
cost averaging technique. It's just natural for people to
1:14:27
do that sometimes. Whereas if you can build
1:14:29
principles around, you know, getting rid of the cash, getting
1:14:31
rid of the cash, buying assets, buying cash flow and producing
1:14:34
assets, and then turn around and letting those assets eventually
1:14:36
help build up your stock portfolio.
1:14:39
I really like that idea in mind. Me too.
1:14:41
It's been the best for me too, and I've lost a lot of money and
1:14:44
stocks. I love alternatives.
1:14:46
Alternatives are my favorite space, whether it's real estate,
1:14:49
gas stations, movies, Although I do worry about the movies of
1:14:53
losing money because like with AI, yeah, they can all the
1:14:55
things I'm just like, well, 4 to 1 is nice, but not if you lose
1:14:59
100% of what you invest in, right.
1:15:00
So that does make me a little bit nervous.
1:15:03
I probably want to just stay a little safer than what I know
1:15:07
because I don't know anything about that world.
1:15:09
But but that is really cool that that's an opportunity.
1:15:11
And for some people, I don't know, I mean, if they have a
1:15:14
good trusted sponsor that's reputable and they've proven
1:15:17
over and over again, then that definitely sounds like a good
1:15:21
option. We just got a 12:50 strategy,
1:15:23
too, that floated through, floated through our desk
1:15:26
recently. Yeah, it's media boards.
1:15:28
So have you ever seen media boards on the side of the
1:15:30
freeway? Billboards.
1:15:31
Yeah, like media billboards. Yeah, you can own those media
1:15:34
billboards the same way you can purchase a vehicle.
1:15:36
You put a down payment down and those media billboards have
1:15:39
contracts already with with with other media companies.
1:15:42
So you may buy a media board that has a two or three-year
1:15:46
contract with Sony Pictures or Xbox or like some other company
1:15:50
already. So there's cash flow that's
1:15:52
guaranteed from the moment that you buy the media board and
1:15:55
there's companies that'll finance those media boards for
1:15:57
you. So you put $100,000 down, you're
1:15:59
buying a $1.2 million media board or $1 million media board.
1:16:03
So you're able to write off 100% of the purchase price on your
1:16:07
tax returns, but you're carrying the debt associated with the
1:16:10
deal. That's what Ken McElroy is doing
1:16:12
now. Is what me and Ken talked about
1:16:13
yesterday on his podcast. MC Media is his company and he
1:16:17
was so stoked to talk about it. He's like, Carlton, are you
1:16:20
talking media boards right now? He's like, I just started a
1:16:22
media board company for bonus depreciation and we just bonded
1:16:25
over that. I really like.
1:16:26
I really like Ken. I love him.
1:16:28
Yeah, So that's media boards. Yeah, yeah.
1:16:30
You know, he's obsessed with it. He was talking about in School
1:16:32
of Hard Knocks too, and it's amazing.
1:16:34
I know, yeah, it's, it's really awesome.
1:16:39
I know a lot of a lot of big people that are investing in
1:16:42
that space right now, but it's challenging.
1:16:44
Like there's not a lot of them You it's, it's also kind of an
1:16:47
inside game girl boys club. You got to know.
1:16:49
That you got to know people. Yeah, but there's cool
1:16:51
strategies with it and I I get it.
1:16:53
Yeah, because it's technically like an equipment depreciation.
1:16:55
That's why it's a 12:50 because you can use leverage.
1:16:58
I just wasn't sure how if people would be lending on those.
1:17:04
I figured you'd have to pay cash on them.
1:17:05
But that's interesting that if you could put 20% down.
1:17:08
There's small banks that will underwrite it.
1:17:10
Yeah, yeah, as as low as 10% down actually.
1:17:13
Really. Yeah, Yeah, yeah.
1:17:15
That's. Good strategy, right?
1:17:17
And with all these strategies, someone's like, Oh my God, it's
1:17:19
all, it's all too much. This is why you start off with
1:17:23
what you know and then you slowly start getting yourself
1:17:25
familiar with other things you do not know.
1:17:27
And the more and more you start hearing it, the more and more
1:17:30
you start being able to coach and educate other people around
1:17:33
that said strategy to the point where you feel confident I'm
1:17:36
going to go participate in that strategy.
1:17:38
I've done almost every strategy you could possibly think of, Oil
1:17:41
and gas, gas stations, research and development, tax credits,
1:17:45
now placing my daughter on payroll, which will be happening
1:17:47
this upcoming year. So I've been able to experience
1:17:50
what it feels like to go through all these strategies.
1:17:52
But I'll tell people still to this day, even though you hear
1:17:55
me talk about 12:50, four to one my #1 strategy is always real
1:17:59
estate. It is always real estate.
1:18:01
It is the try the true thing. It's the one thing I know my
1:18:03
family is going to know how how to run for forever outside of
1:18:06
all these other little alternative investments that I
1:18:08
like to get into. Yeah, I agree.
1:18:10
Real estate, it's just amazing. I've never lost in real estate.
1:18:13
No knock on. Wood but it's because you hold,
1:18:17
you know, real estate's always going to go up overtime and you
1:18:20
hold through the cycles and as long as you have enough, you're
1:18:22
not over leveraged. That's the key in real estate.
1:18:25
Just don't over leverage yourself.
1:18:27
I always like to stay a little under leverage.
1:18:29
So in times where rents drop, like in the past couple years,
1:18:33
valuations have dropped, rents have dropped, vacancies have
1:18:35
increased. And a lot of clients of mine are
1:18:37
or sponsors that I know, real estate, you know sponsors, they
1:18:42
are in a lot of trouble and they're losing assets.
1:18:44
And this is what happened in 2008 in the residential market.
1:18:47
We're seeing more of that in the commercial market right now
1:18:49
because of the adjustable rates. Same thing crashed in 2008 with
1:18:53
the residential adjustable rates.
1:18:54
Now here we had commercial adjustable rates.
1:18:57
So they went overnight from, you know, 2 or 3% to 6 or 7%.
1:19:02
You can't cash flow on that asset anymore.
1:19:04
And so people who were over leveraged on those or got stuck
1:19:08
in assets that they just overpaid or didn't, didn't, you
1:19:11
know, secure a fixed rate and assume that rates would stay
1:19:14
lower for longer got in a lot of trouble.
1:19:17
So I just always try to side on the side of caution, like get a
1:19:21
fixed rate wherever you can get an asset that you can add value
1:19:25
to. So even if the market drops,
1:19:26
you're still adding value and and increasing those rents and
1:19:29
then have enough cash liquidity in your own bank account, which
1:19:32
is the most important thing to be able to float these assets
1:19:36
through the tough times when those tough time comes.
1:19:39
So you don't have to be forced to sell, and you can actually
1:19:41
buy more when the market drops. Yeah, and Ken said this
1:19:45
yesterday. He's like, dude, he's like
1:19:47
there's, there's times when I'll intentionally put way more money
1:19:49
down on deals just because of times that we're in right now.
1:19:53
He's like, dude, cap rates are are rising and multi family
1:19:56
people are being suppressed. The syndicators are getting
1:19:58
cooked right now. And he's like, I'm sitting here,
1:20:01
you know, comfortable on my properties, but like I'm able to
1:20:04
now go buy those Class A properties, you know, 3030% on
1:20:09
the dollar, 40% on the dollar, 50% on the dollar because so
1:20:13
many of those properties were super inflated.
1:20:16
But now with the market and everything like that.
1:20:18
People are forced to sell at 30% off, 40% off.
1:20:21
So he's situated in a position to where he can go buy Class A,
1:20:26
which is not his original strategy.
1:20:27
He loves value add, but he can go add Class A properties to his
1:20:31
portfolio because he's buying things that are on sale right
1:20:34
now. So someone who always wants to
1:20:37
buy real estate when it's a value add is buying real estate
1:20:39
when it's cheap. Right now, that is Class A real
1:20:41
estate. So really like that strategy he
1:20:44
has. Yeah, he has the patience of the
1:20:45
discipline. I think he, last time I saw him,
1:20:47
he told me he didn't buy a deal for like over two years or
1:20:50
something. I could be wrong on that, but he
1:20:52
was sitting on cash. You know, he's got $3 billion in
1:20:57
his fund or something. It's insane.
1:20:59
But he's sitting on cash and not being emotional because a lot of
1:21:02
fund managers, they are raising capital all the time.
1:21:05
So they have to deploy that capital because their investors
1:21:07
want returns and then they make bad purchase decisions and all
1:21:09
these things. And same thing with regular
1:21:12
people is like, don't make a bad decision just to save on taxes
1:21:17
because it could still cost you more money than saving on taxes
1:21:20
if you make a bad investment, right?
1:21:21
So there's a It's an art and it's a dance.
1:21:24
It is a dance. It is an art.
1:21:25
Yeah, Yeah. Our book is called The Art of
1:21:27
Legal Tax Avoidance. That is our our tax book that we
1:21:30
have dropping June 30th. I'm really excited about that
1:21:32
because everything that you just said, we have to weave together
1:21:36
what strategies make the best sense for you and layer these
1:21:39
strategies on top of each other to build a perfect tax plan.
1:21:42
And building a tax plan looks differently for every single
1:21:45
person. I mean, you know, I'm married
1:21:47
with kids. Certain people aren't married
1:21:49
with kids. You, you might live in Arizona,
1:21:51
I might live in California. So your situation is going to be
1:21:54
different from your neighbor's situation, which means your tax
1:21:56
strategy or your tax plan is obviously going to be different
1:21:58
than your neighbors, right? So there's an art to how you get
1:22:01
to success with your taxes and your tax strategy relative to
1:22:04
your risk tolerance and your liquidity versus somebody else.
1:22:07
I want to talk about I was looking at your nice jacket and
1:22:11
I just got a squirrel moment of clothes because we were talking
1:22:14
about this offline. I was like, I wish I could write
1:22:16
off my Rolex. I like your watch.
1:22:17
Yeah, we don't write off Rolex. Yeah, I know.
1:22:19
But I tried it and I couldn't you know, I had a pretty
1:22:22
aggressive CPA and he's like, now we can't, can't, can't do
1:22:25
that one. I argued it for a while, but we
1:22:28
we didn't do it. But anyway, you were talking
1:22:30
about like a way as a business owner.
1:22:32
Of course not. This doesn't work for W2 that
1:22:35
you there is a way that you could potentially deduct a
1:22:37
portion or all like can you teach me that?
1:22:39
Because right now, you know, I spend, I was telling you I spend
1:22:42
a lot of money on all of this. It's from.
1:22:45
So I'm going to ask you personally because I get, you
1:22:47
know, hair extensions, I buy clothes.
1:22:51
I have of course, jewelry, which I know that's not going to be
1:22:54
right up. But what are the strategies
1:22:56
around that for business owners, especially if you do have a
1:22:58
brand and are always doing business and out there putting
1:23:01
media out and that affects it. But is there a way that I could
1:23:05
get a tax advantage without high risk of audit on a lot of the
1:23:10
expenses I have just on personal clothes and items like that?
1:23:12
Yeah, so audit risk really increases when you make a
1:23:15
mistake on a tax return or you leave something off of a tax
1:23:18
return. Simply claiming a deduction on
1:23:19
tax return doesn't raise your audit risk until you get into an
1:23:22
audit. And then they question that
1:23:23
deduction is when things can really start to go a wire.
1:23:26
But let's just say that you're doing podcasts and you're on
1:23:29
social media, which you are 24/7.
1:23:31
A part of your business is being an entertainer.
1:23:34
You're entertaining people in order for you to grow your grow
1:23:37
your net worth in order for you to get clients.
1:23:39
You're putting on like an entertainer would, no different
1:23:42
than Kevin Hart, you know, on Netflix or you know another
1:23:45
actor, you are on TV. You paid for this equipment, you
1:23:48
paid for your outfit. And what is ordinary and
1:23:51
necessary and reasonable to the pursuit of income is what's
1:23:54
considered deductible under Code section 162.
1:23:56
A. So what we have to do is we have
1:23:57
to link these expenses that you have to the pursuit of income.
1:24:01
We have to create the scene that you are an entertainer and
1:24:04
you're providing services through how you communicate on
1:24:06
camera and in return it elevates you, your image and the type of
1:24:10
customers that you're able to bring.
1:24:12
So I have nothing wrong with you writing off your clothing,
1:24:14
nothing wrong with you writing off your hair because of the way
1:24:17
in which you've structured yourself as an entertainer.
1:24:20
Now Joe Schmo off the street who only records 1 YouTube video a
1:24:23
year and one Instagram video a year, spends thirty $50,000 on
1:24:26
clothes and tries to you know, let this pass.
1:24:29
I'm going to have a problem with that because then I'm going to
1:24:31
ask him how can you show me that this is a part of your uniform?
1:24:34
I don't even see you in your uniform all the time.
1:24:36
If I'm the IRS and I'm auditing you, how can you set up a scene
1:24:40
for me to justify that that expense of you buying clothes at
1:24:44
Dolce and Gabbana is ordinary, necessary and reasonable to your
1:24:47
business in the pursuit of income when your business is
1:24:49
only showing you the individual, the entertainer, only 6810 times
1:24:53
out of the year. I do, you know, I think
1:24:56
somewhere between 100 pieces of content every single week across
1:25:00
all my social media platforms. And I'm normally always wearing
1:25:03
the color blue. Blue is my brand colors outside
1:25:06
of tax alchemy. So inside of my operating
1:25:09
agreement, I wrote that my brand colors are blue, that we have
1:25:12
uniforms in the form of jeans, Blazers and jackets, and that I
1:25:17
have a budget for these uniforms of about 100 to $150,000 a year.
1:25:22
And so I go buy products from these different these different
1:25:25
companies. And every single company, I'll
1:25:27
have them embroidery right on the inside.
1:25:29
Says my name right there. Carlton Dennis.
1:25:31
On the. Inside on my jeans right there.
1:25:34
Carlson, Dennis, right there. Yeah.
1:25:36
So I have them put my name, my my business name, tax alchemy on
1:25:41
all of my clothing. And now I've linked inside of my
1:25:44
operating agreement with the receipts, with the
1:25:46
documentation, with me being an entertainer every single day, my
1:25:50
clothes to the pursuit of income.
1:25:53
This is it's 100% deductible. I need to switch over to you
1:25:57
well. Let's do it the right.
1:25:59
Way my because yeah, I definitely I need to fix.
1:26:01
I need to do that the right way because you know, I just my hair
1:26:06
is more than some people's salaries, but I would not show
1:26:11
up on camera in a billion years without your hair.
1:26:14
Without my hair 100% like not a chance of flying.
1:26:18
You're like, it's not happening. Yeah, it's not happening.
1:26:20
So because you know what your image is, have you defined that
1:26:23
in your operating agreement? No.
1:26:24
We got some work to do it. We have some OK.
1:26:26
But real quick, well, that's going to be too long of a
1:26:29
conversation. I was just talking about like
1:26:31
the management of all this is where it gets overwhelming.
1:26:33
And so I guess just work with you.
1:26:36
Absolutely. So first of all, people need to
1:26:38
know I'm not a tax accountant. Most people who are tax
1:26:41
accountants want to do accounting.
1:26:42
They want to file your tax return.
1:26:44
They want to do your bookkeeping.
1:26:45
I have tons of CPA S in my office.
1:26:46
I would be more than happy to do your accounting work.
1:26:49
I'm a tax strategist. I'm a tax professional through
1:26:51
and through. My job is to meet you where you
1:26:53
are, where you're at, figure out what your income is going to be
1:26:56
for the year, and backtrack into the strategies that you qualify
1:26:59
for and to help you formulate a plan.
1:27:01
Most people when they're working with a tax strategist, it's
1:27:04
really awesome because this person actually understands your
1:27:06
finances and what you're trying to do.
1:27:08
They don't act like the IRS and tell you you can't do this, you
1:27:10
can't do this, you can't do this.
1:27:12
They're telling you what is possible in order for you to be
1:27:15
able to execute on that strategy and they build a road map for
1:27:18
you. Tax planning is something you do
1:27:20
365 days out of the year. Tax preparation is something you
1:27:23
do between the months of January through April.
1:27:25
Even though you're earning a paycheck in your you're earning
1:27:27
money every single day. You get to decide whether or not
1:27:30
you need a tax strategist on your team or not.
1:27:32
It's a luxury. Everybody who has a pulse that
1:27:35
makes over $16,000 has to file a tax return.
1:27:38
Not everybody needs a tax strategist.
1:27:39
So you have to decide if you already have a tax account on
1:27:42
your team and they do a great job of following your returns,
1:27:44
but you're still writing six or seven figure tax bills.
1:27:46
Is it time for you to add a tax strategist on your team?
1:27:49
Someone who's solely focused and dedicated on figuring out ways
1:27:52
to help you reduce your liability.
1:27:54
How can people get a hold of you?
1:27:56
Carlton Dennis on every platform, YouTube is where we
1:27:59
have dedicated the majority of our efforts to educate you guys.
1:28:03
DM us on Instagram. We return all of our Instagram
1:28:06
DMS and we'll be more than happy to set up a call.
1:28:08
And if you're looking to get some more advice on strategies
1:28:11
that we teach on outside of our YouTube account, you just book a
1:28:13
call at taxalchemy.com, www.taxalchemy.
1:28:16
Dot com amazing we could talk about tax we may be the only
1:28:19
people to get excited about talking about talking a smile at
1:28:21
our face the whole time like it's.
1:28:22
The people watching this podcast will be like, they're way too
1:28:24
giddy over this stuff. They know something we don't
1:28:26
know and I'm mad. I'm mad that they laugh like
1:28:29
this. Listen, we it is
1:28:32
unconstitutional to pay more in taxes than you have to.
1:28:36
I believe, like I believe in capital.
1:28:38
I mean, you, you pay taxes on everything.
1:28:41
You pay sales tax, you pay income tax, you pay property
1:28:44
tax. Property tax.
1:28:45
That yeah, you're like gift. Gift tax.
1:28:47
Give that everything you pay taxes on.
1:28:49
And so it's why would you pay more than you don't have to?
1:28:52
And more money brings you more freedom, which brings you more
1:28:55
time, which allows you to have greater connections, greater
1:28:58
impact, greater ability to serve, greater ability to feel
1:29:01
joy and have experiences in the world and in your life.
1:29:03
Like why would you not be obsessed with this?
1:29:05
Yeah, it's more patriotic to not pay taxes.
1:29:07
It's more patriotic to look at the incentives inside of the tax
1:29:10
code and to figure out those incentives to not pay taxes.
1:29:12
Your founding fathers never wanted you to write these types
1:29:14
of tax bills. I mean, we were throwing tea
1:29:16
into the Boston River. Seriously.
1:29:18
Over far less. Yeah, I always say I did
1:29:21
timeshare sales. We didn't cover that long time
1:29:24
ago, but that was the only sales training I had formally.
1:29:27
And the top sales guy there, he one of his lines that would
1:29:31
always get people to buy. He was like, it's okay, being
1:29:34
rich and happy isn't for everyone.
1:29:35
You were like, I want to be rich and happy.
1:29:38
So but yeah, it's, it's true. It is, It is.
1:29:42
I mean, I I like being rich and happy and I want other people to
1:29:45
be rich and happy because I've been poor and unhappy many times
1:29:48
and money doesn't. I choose rich and happy every
1:29:50
time. Oh yeah, a million times over.
1:29:52
And you know, there's a lot more to happiness than just money.
1:29:54
But you cannot be happy without money because you can't.
1:29:57
How can you be truly happy and fulfilled and have an impact and
1:30:00
have a purpose and have deep relationships and connection
1:30:02
and. When you're stressed out about
1:30:03
money. When you're stressed out about
1:30:04
money and you're grinding it, you know, as a janitor from 8:00
1:30:08
to 5:00 or 8 to 812 hour days, seven days a week, like it's
1:30:12
just not possible in my opinion. So anyway, rapid fire school,
1:30:16
hard knock style. How old are you when you became
1:30:19
a millionaire? I became a millionaire at 27
1:30:20
years old. What is the number one thing you
1:30:22
attribute to your success? Number thing I attribute to my
1:30:25
success is getting mentors and obsessing over pattern
1:30:29
recognition. Tony Robbins talks about the
1:30:31
importance of pattern recognition.
1:30:34
What is the best financial book other than Rich Dad?
1:30:36
Poor Dad. Think and grow rich, Napoleon.
1:30:38
What line of business are you in?
1:30:39
I'm a tax accountant and tax professional.
1:30:41
What's the biggest regret that you have?
1:30:44
The biggest regret that I have is not investing sooner.
1:30:48
What is the best piece of advice you've ever received?
1:30:50
If you want to go fast, go alone.
1:30:52
If you want to go far, go together.
1:30:53
And if you could leave one message to your younger self,
1:30:56
what would it say you're? Going to be so successful,
1:30:58
you're going to change so many lives, but I want you to focus
1:31:00
and I want you to get started sooner.
1:31:01
I want you to cut out the bad habits.
1:31:03
I want you to dial in. I want you to lock in little
1:31:05
bro, because I'm telling you right now the world and what you
1:31:08
want is right there on the other side of discipline.
1:31:11
So discipline yourself right now.
1:31:12
Make the hard decisions, delay the gratification, delay the
1:31:15
vacations, delay the excess drinking.
1:31:17
I promise you're going to be so grateful you did.
1:31:19
Who is your hero and why? My hero is my mother.
1:31:21
My mother is my hero because she laid the path for me for
1:31:24
entrepreneurship. I believe that I'm carrying the
1:31:27
torch for our family when it pertains to being the industry
1:31:30
leaders in tax education. And if you could leave one
1:31:33
message to the younger generation, what would it be?
1:31:35
One message I want to leave to the younger generation is to
1:31:38
work hard as if you do not know what is going to happen
1:31:43
tomorrow. Nothing.
1:31:46
Nothing is guaranteed in life. You have today.
1:31:50
You have to grind today. You may not know where the light
1:31:53
is at at the end of the tunnel, but you know that there's light
1:31:55
in this world, so stay focused on that.
1:31:58
Carlson, you're amazing. Thank you so much.
1:32:00
Thank you for having me on Hannah, this is great.