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Top Five TikTok Tax Myths (Guest: Heidi Henderson) · The Accounting Podcast

• Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Blake Oliver: [00:00:04] Rule of thumb, if it's suitable for everyday use, it is not a write off. There was one rare court case where the taxpayer came out on top. In the 1994 case, Hess versus Commissioner, the petitioner was an exotic dancer who got very large breast implants for professional branding purposes. But, you know, not practical for daily use, I guess, is the I mean, I got to love this stuff, right? Got to love it. Heidi Henderson: [00:00:30] This is the best article. Blake Oliver: [00:00:31] I know, right? David Leary: [00:00:35] Coming to you weekly from the OnPay Recording studio, this is the Cloud Accounting Podcast. Blake Oliver: [00:00:48] Hello and welcome to The Cloud Accounting Podcast. I'm Blake Oliver. David Leary: [00:00:52] And I'm David Leary. Blake Oliver: [00:00:53] And we are joined today by Heidi Henderson, executive vice president at Engineered Tax Services and host of the Healthy Wealthy and Wise Podcast. Heidi, welcome. Heidi Henderson: [00:01:04] Hi, Blake. Hi, David. Thanks so much. I'm excited to be here with you guys. Blake Oliver: [00:01:08] It's great to see you. We got to see you in person. Not too long ago, I think it was at was it QuickBooks Connect, David? David Leary: [00:01:16] Yes. In Vegas we connect because. Because Heidi is in Vegas. So she happened to be in town. Heidi Henderson: [00:01:22] We happen to be in town while you guys happen to be in town during by, if you remember, during the NFR. So we were ready to go to the rodeo, and I was so disappointed Blake wasn't in his cowboy hat. Blake Oliver: [00:01:34] And that. That was funny, right? It was a total coincidence because you weren't there for QuickBooks Connect. You were there for the rodeo. Yeah. And you. This is so cool. You have horses on a ranch. What? What kind of horses do you raise? Heidi Henderson: [00:01:49] Oh, geez, it's. It's a bit of an addiction. My my husband is a hunter, so he's got. We have a number of quarter horses, but then I show dressage horses, so we've got some warmbloods that are kind of European bred, big, big fancy horses. He calls them the fancy folks. And then we've got our mountain mountain regular folks. Blake Oliver: [00:02:08] You've got the whole continuum, you know, the the working horses and the fancy horses. That's they ride the. David Leary: [00:02:14] Fancy horses Or are they just pure. Heidi Henderson: [00:02:16] Show? Oh no, they. Yeah. No, I ride and show them like. Yeah. Constantly. Blake Oliver: [00:02:24] Well yeah. So you were there for the rodeo and wearing your, you know, attire. Appropriate attire for that. We were there for QuickBooks Connect and we got to meet up and that was really fun. And, and we got to chat. And I'm looking forward to chatting with you today about taxes because your firm is called Engineered Tax Services. And when I first heard the name of your firm, I thought, that's so interesting. Engineering and taxes together. Can you give us the explanation for that? Like, what are these two things have to do with each other? Heidi Henderson: [00:02:58] Yeah, yeah. We have this little tagline and I kind of joke around that it's silly, but it really is comparable. It's that we marry the science of engineering with the principles of tax and accounting, and people will call our firm and say, Hey, I need a new accountant and I need someone with a lot of strategy. And the first thing I say is we are not an accounting firm. We don't want to do your tax work. And they say or someone introduces us, they'll say, Well, no, I already have a CPA, so I don't need your help. And I said, Well, that's really good. We want you to have a CPA because we want to work with you and your CPA and really look at the strategy behind what you're doing and help capture some of these really complex tax credits and deductions that might be available for business owners or real estate investors. And just looking at some of those complex areas and capturing all of that stuff that's out there that a lot of times gets missed. David Leary: [00:03:53] And a lot of these tax credits are like the the green building and they're engineering tied. Right. A lot of these. Yeah. Heidi Henderson: [00:04:00] Yeah, exactly. And that's where the engineering principle comes into play. To your point, a lot of it is related to real estate, so cost segregation is really then breaking down all the components of a real estate asset, but also looking at the green energy. So what is energy efficient? How efficient is it? And then there are some federal incentives against income tax to offset the costs for either building a new building that is energy efficient, building energy efficient residential housing units, or retrofitting an existing building that then makes it more efficient. So it's got lower costs to actually operate. It uses less, less public resources to power that and drive energy. So the IRS then has an incentive to help fund a portion of those things. So yeah, those are a few examples of what we specialize in. David Leary: [00:04:47] It's a different skill set than a normal tax preparer. Like you're going to claim the number on the return as the preparer, but how do you get to that number? Exactly. Heidi Henderson: [00:04:56] Exactly. Yeah, because a lot of those are requiring a physical site visit or some engineering background or energy modeling. I mean, I don't I've never seen a CPA yet who can go out and do energy modeling on a building to determine the energy efficiency. And that's why before we jumped into this work, you know, we've been in business for 23 years, but before that, there was this broad expanse between what developers or even what what engineers like us who are looking at energy efficiency, what they could help a client with versus what a CPA could help with. On the engineering side, they were like, What? This is a tax credit. Don't know how to read the tax code. Cpas will look at it and say what this requires energy modeling. I don't know anything about that. And so for years we saw a lot of these incentives just get left by the wayside. Cpas don't talk about it. They don't bring it up with their clients. On the design side, if you have an architect or engineer who's working on these design projects, they're not going to talk about it because they're not reading, you know, 300 pages of tax code to understand it. And so there was this big gap, and that's really where we were able to kind of start with identifying that there were some expenses here with a lot of opportunity for clients to reduce their tax and capture these write offs. But someone needed to come in and sort of bridge that that expanse between the two industries. Blake Oliver: [00:06:16] And you have a background in commercial real estate. So you've combined these two things commercial real estate. They've got all the tax credits going on. Combine that with your background in accounting. I mean, did you just did you fall into this or was this planned? Heidi Henderson: [00:06:30] It's a it's a great question. You know, what I have found in my career, especially with managing and hiring employees, it's so bizarre, some of the weird specialties that people get into. And that's what happened with me is I went into accounting, I have a master's in tax, and I was pulled in and mentored by someone who owned a commercial real estate group when I was in college, actually. And they really helped cultivate that. And of course, I'm seeing these people running a very successful real estate company. These guys are coming in in Porsches every morning. And I'm like, Geez, what are they doing? And so I really grew up in the space of blending, accounting with real estate and understanding how these correlate. What then happened is my sister began working with Engineered Tax Services and she, you know, about a year later says, you've got to come work with me. And in fact, I actually just did a podcast with her on my podcast that'll come out, I think next week. And we were talking about it because she says, You got to come work with me. And I was like, Kim, that's a horrible idea. Family and business is not always good. And so I was worried about it. But she goes, But this is literally the whole culmination of your career with tax and understanding real estate and how we can blend these opportunities is where this all comes to play. And so it just fell into my lap from that sense and does absolutely tie into what I'd spent my career really learning and becoming really knowledgeable on. And so it's been fun to be more in the consulting space and really working with business owners and CPA firms to strategize and to find opportunities. Blake Oliver: [00:08:12] So we're going to talk today about tax myths. And we've got some big news from the IRS about how they want to spend the $80 billion. We also have this ongoing shit show, if you will, with these IRC mills. And given that you are in the tax credit space and have been there for your firm has been there for decades, right. Like how what is what is up with this whole IRC mill thing? Like give us give us give it to us straight. Heidi Henderson: [00:08:43] Blake Oh my gosh. You're jumping right in. Oh, yeah. Blake Oliver: [00:08:47] Come on, let's. Let's lay down on it. Heidi Henderson: [00:08:48] Yeah. Okay. I have to start with a story. We've been in business for 23 years. Okay? We have audit defense on everything we do. We're going to defend that. We're in the long game. We do lots of things, and we plan on being in business for a long time. I was at a conference probably a year and a half ago when IRC was really hot and there was a guy there who was selling IRC with some group that had just been founded. If you pull it up and look at their corporate structure, it was like four months old or something and he was hard sell pitching IRC. And I asked him, I said so. So that's all you do. You you made a company to do this. Oh yeah, yeah, we're making millions. And I said, How's that going to go for you when this goes away? Because it's kind of a short lived incentive. And he said, Oh, I'm just going to get everything I can and then I'm going to I'm, I'm done. I'm retiring. I'm going to go lay on the beach in the Dominican Republic and I'm out of here and hiding from the. David Leary: [00:09:44] Fbi and. Heidi Henderson: [00:09:44] Irs. Yeah, right. Yes. Right. Blake Oliver: [00:09:46] And I love the honesty. I love the honesty there. Heidi Henderson: [00:09:49] I know. And I was like, okay. And I said, well, where is the where's the technical background? And he goes, well, we've never been audited. And we tell our clients we've never been audited and we haven't had anything thrown out. And I was like, This is been around for three months. And but that was the pitch that he was going and telling. David Leary: [00:10:11] Which arguably is true, Right? Yes. You have been audited even though it's going to take years before the IRS figures all this out. Heidi Henderson: [00:10:18] Exactly. Right. Right. And going back to your point blank about now, the IRS expanding and hiring all these people, it's like, well, they're not really auditing very many of any things right now. And so that was so alarming to me. And it has been crazy. We have clients, we have CPAs. I had a CPA send me an email that came from a client and he says, Hey, look at this. What do you think? And it was one of those. Mailers with like the, you know, the three perforated edges that you open up and it's looked like it's printed in the old dot matrix type printer looked exactly like something you would get from the IRS. And it literally said, we are a government agency telling you you qualify for up to $586,000 in federal credits and you just need to call this number. And, you know, and he was like, my client got this. And it says that he for sure qualifies. And and I was like, oh, my gosh, this is interesting. David Leary: [00:11:14] Got a new a new voice mail yesterday from Sarah telling me how I can receive up to 26,000 for each employee. And she has her phone number of these days. We just call on the show. Blake Oliver: [00:11:24] I just think it's funny that we get listener voicemail and then it's basically half listener voicemail and half scams. Yeah, right. Or mills or whatever. It's just it's nuts. I wonder, you know? So. So you brought up the $80 billion. Let's get into talking about that. How is the how is the IRS going to spend the $80 billion hopefully on maybe shutting down some of these IRC mills, although I wonder if they'll be able to do it before they all like get their money and then, you know, go retire in the Dominican Republic, right? Yeah. Beyond, beyond extradition treaties, I imagine. Heidi Henderson: [00:12:01] Exactly. Well, I was I was reading some of this in the last couple of days. And one thing that I did find interesting, there's two points I wanted to mention on this. One is they were saying that they're not necessarily looking at 78,080 7000 employees, something like 30,000 right now, but that they've lost almost that many employees since 2020 and haven't been able to really recoup the employees. So their employment numbers are down dramatically. So I think first off, that's a one point is they really just need to kind of replenish their teams. Blake Oliver: [00:12:35] Wait, you mean it's not going to be 87,000 armed IRS agents? Heidi. Heidi Henderson: [00:12:39] I'm not going to come chase us down. Blake Oliver: [00:12:43] I mean, they should go after that guy in the Dominican Republic who's, you know, stolen all that money from the government via fraudulent claims. Right. Hopefully that's that's what they're doing. But. Right. Right. Heidi Henderson: [00:12:53] Because he's going to be on the beach and then his clients that he claimed these fraudulently for are going to have disallowances plus penalties and interest. And he's got his share out there. Nobody's going to find him. Blake Oliver: [00:13:04] Yeah. And the problem is, do. David Leary: [00:13:06] We know that these people, all these this decrease in employees since 2019, is this the retirement cliff that's happening at the IRS or is this just like people are like, I'm out like everybody else is having that problem? Blake Oliver: [00:13:18] I think. Well, with the IRS, I think it was a lot of retirements. That's what I heard. They had an aging workforce. They hadn't been hiring for a decade or more because they were under freezes. David Leary: [00:13:29] If I go back to during COVID, like they had a lot of high, highly people in that highly risk category for COVID. That's why they had a problem with bringing people back in the office. So yeah, you're right, they're pretty close to retirement. Blake Oliver: [00:13:40] So here's the breakdown. The IRS was mandated to say how they're going to spend the $80 billion that they have been given by Congress over the next ten years. And the plan is at a high level. Enforcement is $45.64 billion. So over half of that is going to be enforcement operations. Support gets $25 Billion Business systems modernization only gets 4.75 billion, which kind of worries me because we're we're a show that, you know, sits at the intersection of accounting and technology. And that's a tiny little sliver of that money. I mean, maybe they can do it for that. But it just seems like from a priority standpoint, I don't know. And then taxpayer Services only gets 3.18 billion. So I think that's where people are saying, uh oh, they really are going to just hire a bunch of agents to go and audit people. And I guess the question is, who do they audit? Right? Is it is it going to be, as promised, the folks making over $400,000 a year? Or is it going to be everybody? Heidi Henderson: [00:14:46] Yeah, I mean, I agree. I keep seeing that number. People over $400,000, which I think is certainly where there's more meat on the bone. And certainly they're going to look at at the potential to gain additional tax revenue. So they're going to want to go after those people that have higher incomes. And I really do think they will absolutely target people that are using certain strategies to to deploy more write offs. So whatever that may be, to find ways to mitigate tax through strategies or investments or depreciation or whatever it may be, I think they're really going to dive deep into a lot of those strategies. Blake Oliver: [00:15:26] Yep. David Leary: [00:15:27] Go ahead, David. Say, I saw an op, the op ed in the Wall Street Journal about the problem with this four $100,000 threshold is a lot of people are going to game it, right. So they're going to figure out like, how do I show up at, you know, $399,000 so I can reduce my chance of being audited. And that's probably the sweet spot. Now, they're not saying like maybe when they do audit people under 400,000, it's only going to be the 390,000 people because that's probably highly likely. That gray area where people are if they're if they're unscrupulous, they're trying to get underneath. Blake Oliver: [00:15:57] I can't remember who made this promise. Was it Janet Yellen who said it? I don't remember. Somebody high up in the administration said, you're not going to get audited. If you make less, you're not going to have a higher chance of getting audited if you make less. Yeah. So what she. David Leary: [00:16:10] Said is of any new resources they get, they're not going to put them on the 400,000 and under threshold people. So whatever's there now will remain. Blake Oliver: [00:16:18] But then the question is, does that mean the people who reported already under 400,000 but probably should have reported more? Right. That's where that's where the question is. Heidi Henderson: [00:16:29] So, yeah, that's a good point because you've got you've got your gross and you've got your net. Right. Blake Oliver: [00:16:34] Which number is she referring to? Is it adjusted, you know? Right. Yeah. Heidi Henderson: [00:16:38] Yeah. I think we've learned some, you know, certain politicians that, you know, remain unnamed, I think might have had a lot of. Gross but net was in the negatives. Blake Oliver: [00:16:51] Jessica in the live stream says the problem with the new IRS funding is that most new hires will be incapable of high level, complicated audits. So they'll start by getting experience on simple returns, right? And I think that is a good concern, right? Legitimate concern. You can't just take a new hire and toss them into an audit of some sort of inter nested 200 LLC, you know, complicated situation. They just can't handle it. Right. So so that's why. David Leary: [00:17:23] So many people that take the child tax credit or the early child tax credit get audited. Blake Oliver: [00:17:29] Earned income tax credit. Right. Those are easy to audit. Right? David Leary: [00:17:33] So so so instead of 400,000 being the threshold should be like 48,000. Like like, like stop auditing people under 48,000. It's a waste of everybody's time and resources and energy. Like stop. Heidi Henderson: [00:17:45] Well, yeah. And to to Jessica's point, I mean, we've seen that firsthand. You know, we specialize in R&D credits as well. And R&D credits are somewhere maybe we'll deal with an audit. But the R&D credits highly technical. So our project managers are all tax attorneys. This actually goes back to like, you know, my background is weird because this is blend of real estate and and accounting. Some of my project managers, I have a project manager that has a degree in software software engineering, and they went back for a law degree. So they're a tax accountant but started off with software and you're like, How did that happen? But they're this incredible R&D person because they can communicate with our software developers at the same level and speak their language, but they understand the tax. So it's a weird blend, but how rare is that? So then when we deal with an auditor who comes in to review an R&D credit, we we've actually asked in an audit, we asked a new auditor who was looking at a project. We said, Have you ever done an audit on an R&D study before? And the response was, No, no, this is my first, but I'm sure I'll figure it out. And so just from that that standpoint, you have to realize that a lot of these auditors are not highly educated individuals. These are not CPAs. These are not people that have the technical knowledge that we have from a lot of our CPA firms and a lot of these groups that are doing technical analysis. Yeah. Blake Oliver: [00:19:11] So and that's why it's important to have the backup and to have the report, right, Because if you drop that nice, thick report on that auditor's desk. What are they going to do? Are they going to go after you or are they going to go after the person who has no documentation? Right? Yep. Don't be the low hanging fruit. Mhm. I mean that's exactly right. David Leary: [00:19:33] But going back to your graph, that graph, Blake. Right. And most of the money is being spent on enforcement and I think that's a bad way to present that right? Because that could actually mean they're going to pay people higher wages. That means there's going to be higher quality individuals. But that gets all lost with the word enforcement, Right? Blake Oliver: [00:19:46] It just people just think you're hiring a bunch of auditors that just if. David Leary: [00:19:49] That just said h.r. Right. Or human human capital or something like that. Yeah, it would garner a much different reaction. But presenting it as the biggest slice of the pie as enforcement scares people very political and shame on accounting. Is that accounting today? Who made that graph? Blake Oliver: [00:20:04] I don't I mean it's their their article. Yeah. I assume they made the graph. David Leary: [00:20:07] That presenting it that way because then you know, all the all the other news medias will just run with that narrative. Yeah. Heidi Henderson: [00:20:13] Well and to your point, David, I appreciate what you're saying because if you read further down, it says 5000 of the hires are going to be specifically for customer service. And that's a big part. When I read the initial code that came out for this, this massive lump sum of money going to the IRS, one thing that I thought was fascinating, you guys understand technology. I was blown away by this, but there is a tremendous amount of money. I think it was something like. I don't quote me, but I don't know, 5 to $10 billion to implement a callback system. And my first thought was, are there not great independent software companies out there that have callback systems that don't cost 5 to $10 billion to implement? Blake Oliver: [00:20:58] I mean, you could just go out and buy one of them at that price point, right? Just go buy a buy the whole company. The whole company. Whole company. Heidi Henderson: [00:21:05] Yeah, exactly. Right. Exactly. And that's what I find so intriguing because, you know, I'm sure many of the accountants on this line know that, you know, the IRS has a three back a three hour courtesy disconnect. So if you've been on hold for three hours, they feel bad for you. So out of courtesy, they'll just automatically disconnect. So thoughtful of them. Yeah, Yeah, exactly. And you're like, what era do we live in? So to your point, David, I think they could certainly communicate what they're doing differently because if they really spend this, that, look, we're trying to implement a callback system. We're adding tons of people to help on the customer service side to really make the IRS more user friendly and more responsive, to help taxpayers and to help the accounting industry get the responses we need, get the answers we need to some of these technical questions or issues that we run into, because that's one of the biggest problems. How many errors are related to the fact that it's almost impossible to get a hold of an agent? David Leary: [00:22:05] With all the banking crisis stuff going on. You're hearing a lot of podcasts, lots of stories about FDIC. Have you heard about these stories? Like apparently it's the greatest government agency ever. They're polite. They come in, they know what they're doing, They're confident. It's very organized. And, you know, FDIC like it's like the Chick fil A drive thru of a of a government agency. Right. It's like how how, how how do they get that culture from that organization into the IRS? Maybe more? Blake Oliver: [00:22:31] That's a good question. Well, let's think on that. Maybe we'll come back with a plan next episode. In the meantime, let's have some fun and talk about these. Talk about the terrible tax advice on TikTok. I always love highlighting that keeper Tax.com not the same as the keeper Practice Management software keeper. Tax.com did a great roundup of the worst of the worst tax advice or mis advice on TikTok. Now did you. David Leary: [00:23:04] Make sure none of our friends are on this list before you head out to the show? Blake Oliver: [00:23:08] Well, it's funny. They they highlight two of our friends creators. Duke loves taxes and the not spicy accountant both who we you know, we know Laura Lynn Wilson is the not spicy accountant. And Duke, I forget his last name. Alexander. Yeah. Duke loves tax. We got to meet him at QuickBooks Connect. They are doing a great job of dispelling the misinformation, but I saw somewhere that 1 in 7 financial posts on TikTok videos is, like, wrong. So there's a lot of it out there. And there's only there's only a handful of people that are talking about it. So let's go through these. Okay. Khalid, who is in the live stream, said, Can I Section 179, my g-wagon lol. Well, let's let's find out, shall we? So myth number one, these are the top five myths on TikTok. If you write off 500in business expenses, you'll save $500 on your taxes. I think this this I also affectionately call the Schitt's Creek theory of taxation. Right. Have you seen that meme, David, where it's the the you know, I forget their names actually it's dad and son are talking and son says, you know, it's a write off. And dad says do you even know what a write off is? Right. It's that it's a write off. Who pays for the write off? David Leary: [00:24:28] Yeah. Blake Oliver: [00:24:29] So, yes, if you decrease your tax bill, as we all know, it's not a 1 to 1 reduction in your taxes unless it's one of those awesome tax credits, right? Like that, Heidi, There are a few. Exactly. Heidi Henderson: [00:24:40] That's exactly. Blake Oliver: [00:24:40] Right. What's your favorite 1 to 1 tax credit? Heidi Henderson: [00:24:44] Oh oh, probably 45 credits. 45. And they just they just increased some energy efficient housing units. So they just increased it up to $5,000 per unit. So like someone builds an apartment complex with 100 units, they can get a $500,000 tax credit towards the cost of that project. So that that's the one I'm talking with a lot of people about these days. Blake Oliver: [00:25:09] Oh, that's a good one. Myth number two, people who rely on their appearance for work can write off appearance related expenses. Yeah. Heidi Henderson: [00:25:17] I did not get that memo. Blake Oliver: [00:25:20] So, yeah, you can't do it. David Leary: [00:25:22] That one's being stretched because think like there's some gray areas, like newscasters and things like that. But now people are applying to like, I'm a real estate agent. I'm like, people are really trying to stretch that. When you see that one. Blake Oliver: [00:25:33] And I have seen these myself, like people are saying, you can write off, you know, your gym, you know, membership and all that stuff, or if. David Leary: [00:25:40] You put your initials on your shirts or inside your coat jacket, then you can count it like there's all this crazy stuff. Heidi Henderson: [00:25:46] Oh, uniforms. Blake Oliver: [00:25:48] Rule of thumb, if it's suitable for everyday use, it is not a write off. There was one rare court case where the taxpayer came out on top in the 1994 case. Hess versus Commissioner. The petitioner was an exotic dancer who got very large breast implants for professional branding purposes. But, you know, not practical for daily use, I guess, is the I mean, they got to love this stuff, right? Got to love. Heidi Henderson: [00:26:14] It. This is the best article. Blake Oliver: [00:26:15] I know, right? Yeah. Here's another one. Drake versus commissioner. The court ruled that a man enlisted in the military could not write off his mandatory biweekly haircuts as they doubled as a personal expense. Hey, Hines versus Commissioner. The court ruled that a news anchor could not write off his make up haircuts or wardrobe, even though they were required for him to maintain a neat appearance at work. Pevsner versus Commissioner. The court ruled that a manager at a How do you say that? I'm not I'm not fancy enough to know how to say the Yves Saint Laurent. Heidi Henderson: [00:26:46] Yeah. Blake Oliver: [00:26:47] Yeah. Boutique could not write off the YSL clothes she was required to purchase and wear at work and hamper versus Commissioner. That one's recent 2011. The court ruled that another news anchor could not write off expenses like manicures, hair care, makeup and conservative on air clothing, even though all those were required for work. So, David, you're wrong. David Leary: [00:27:04] I was wrong. Blake Oliver: [00:27:05] This is. You were. You were repeating. David Leary: [00:27:06] Pull down my TikTok videos. I had to put up with this myth. Blake Oliver: [00:27:11] Three lifestyle influencers can write off lifestyle expenses like clothing hauls or home decor. That's a big one for Instagram, right? Because people are always like buying stuff and then unboxing it at home for their videos. If you use it personally, yeah, you can't deduct it. David Leary: [00:27:28] So just to clarify on this, if I buy an Ember mug, it's like 100 bucks and I only use it when recording the podcast and I don't drink out of it any other time. It might be okay. Blake Oliver: [00:27:38] I don't think so, David. And actually, I have an ember mug right here. Thanks to thank thank you to Avalara for providing me with this ember mug here. They're quite handy. Oh, yeah, you can't do that. Let's see. Do they have any good cases in here? I don't see any. Okay. Myth number four You need an LLC to claim write offs. That's a good one. Write. Put everything in an LLC, and it's a write off. Just buy your house in an LLC. Now it's a business expense, right? And then, of course, all the tax pros are saying like, you don't even need an LLC. Yeah, right. And also in many states it's so expensive to just have an LLC if you're a freelancer. I think that was the worst thing when I started out in California. The $800 a year just for the privilege of having an LLC didn't make it even worth it for me. It's ridiculous. Um, myth number five fifth and final myth. Think you might want a Hummer to use for work? Go for it. You can deduct its first cost. The first year it's in use. That's a myth. Creators who encourage this deduction are referring to section 179. A portion of the tax code that lets you deduct the purchase price of a business vehicle if it meets certain requirements. These requirements are it weighs between 6000 and 14,000 pounds and you must use it 50% or more for work. There is a bit of truth in this myth. You can deduct vehicles that meet these requirements under section 179. However, several creators failed to mention one major restriction on using this tax code provision for savings. You can only deduct the business use percentage of any purchases. That means if you use your g-wagon for work 55% of the time, you can deduct 55% of its purchase price. David Leary: [00:29:17] So what about if you skin the car and you skin everything? That doesn't matter? Blake Oliver: [00:29:22] I mean, I don't know, David. I'm not a tax professional. I'm just reading a blog post because I'll. David Leary: [00:29:27] See this a lot of times down in Rocky Point. You know, you go down to Rocky Point and people are down there. They got their. Kickass trucks and they got their side by sides and they're all skinned for their roofing company or whatever it is. And I'm like, Is this an advertising game or are they playing a tax game? I'm always like confused by by one of the two. Heidi Henderson: [00:29:45] Yeah. Blake Oliver: [00:29:46] Is a g-wagon. So like the I'm seeing its MSRP is $156,000. Right. So it's not not exactly the best strategy. I mean, yeah, you can reduce your taxes, but you're going to be spending a lot of money to do it, right. I think that's well. Heidi Henderson: [00:30:05] Especially if you're only you only get to write off 55% of that tax applied by your effective tax rate. Yeah. When else done and. Blake Oliver: [00:30:13] That's combining myths one and five right. That it's a 100% 1 to 1. Oh now now the now the peanut gallery is chiming in. Ian Crook says, What about company swag t shirts with logo on it? I mean, the problem is you can wear that t shirt out when you go to the gym or when you go like in your regular life, right? So I think the lesson here is that everything is deductible until the IRS says it isn't when you're in tax court. Right. That's the that's the problem. Cam says. What kind of expenses are we talking What kind of expenses are we taking with clients who made money on off? I don't know what that means. Only fans. Oh, only fans? Heidi Henderson: [00:30:56] Oh, I didn't know what that meant either. Blake Oliver: [00:30:58] Sorry. We just. I just did an interview, actually, with an accountant who specializes in Onlyfans creators. Oh. David Leary: [00:31:07] So don't give out the answer to this question, and somebody will have to listen to the earmark accounting podcast when that one goes live. Blake Oliver: [00:31:13] That's right. So subscribe to the Earmark Accounting podcast and you'll hear my Onlyfans accountant interview with with the Who was it I interviewed? David, you said this whole thing up. David Leary: [00:31:24] Oh, Lauren, sorry, I'm blanking out on her name. I think you'll. Blake Oliver: [00:31:27] Remember. And we'll get it back. I'll get it, Ian says. I always tell clients if they want to pay zero tax, I'll just increase my fees until they're not profitable. That's great. Heidi Henderson: [00:31:37] That's a good one. Ian. Blake Oliver: [00:31:38] I can I have a I have a solution we can implement today that will help you pay $0 in taxes. Allow me to send my invoice and now you have a zero tax liability. I love that one. David Leary: [00:31:50] So, Heidi, you're on the other side of the fence, right? So if I'm a if I'm an accounting firm and somebody comes to me and I look and I'm like, oh, you shouldn't have got this tax credit, this is crazy. And do you think it's like the accountants responsibility to, like, push back on the client or the accountant just file or like, you know, somebody buys this? What is the the Mercedes that Blake brought up? Like, where do you think the accounting professionals role is in this? Heidi Henderson: [00:32:18] Man, that's a good question. Um, you know what? I think there's two sides of it. So we run into situations all the time because we have clients who come to us and say, Look, I have this huge tax liability. What can I do? What are my options? And we'll start to look at, okay, you have real estate. Let's look and see if we should do some cost seg or we should find some write offs with these things. Sometimes those clients, when they see the numbers, their next comment is why didn't my CPA tell me about this? Why did they not mention that I should have done this two years ago and it would have saved me $300,000 because that's typically what we're seeing in some of these. It's huge. So we we do I mean, we all we have another group called the Growth Partnership. It's part of our umbrella of companies. The Growth Partnership is specifically a firm that coaches CPA firms on how to grow, how to coach their people, and really understanding soft skills and consulting and advisory services so that they're not just looking at compliance. Because I think today, if you look at every survey out there, you look at what accounting today is doing, you look at what clients want. Clients want advice. They want to know what should they be doing, What can they do to help reduce their tax? How can they improve their write offs? How can they improve their cash flow? How can they do all these different things? There's this is what clients are looking for from their accountant, not just compliance, but to your point. Heidi Henderson: [00:33:44] We also then will run those numbers. We'll run certain strategies. And the first thing I tell a client, here's the numbers, here's the costs. Next step we need to have a conversation with you and your CPA because there's a whole gamut of limitations. There's other considerations that need to be understood to make sure you can use these write offs. Are there passive limitations? Is it active? You know, what are your how many losses do you have? Some people don't even realize, like I'll ask, do you know what the percentage of taxes that you pay? They have no idea. And a deduction is purely based on what your percentage or effective tax rate is. So we never want to have a client sign an engagement to start a study without them fully vetting that. And we want to bring the CPA into that conversation because to your point, it's the full circle aspect of it. So I do think that CPAs do need to push back on things that are incorrect. Ultimately, they're usually signing the tax return, but I do think that they should spend the time to be at least slightly educated enough to be dangerous, to recognize certain opportunities for their clients when they exist. Blake Oliver: [00:34:57] Got it. So I saw a great April Fools post. There weren't too many this year, but there was a really good one on accounting today. Firm sets retirement age at 85 to avert Staffing crisis. This is. David Leary: [00:35:11] By this was in accounting today. Blake Oliver: [00:35:12] Yeah by Kristin Rampy. David Leary: [00:35:13] Well done accounting today. This is surprising. It's an opinion. It makes it believable, actually. Blake Oliver: [00:35:18] Right. And it's an opinion piece. Right. So they didn't put it in the news site. So I think it's appropriate. On Saturday, April 1st, it was reported that while the accounting profession struggles with an ongoing talent shortage, local CPA firm Watts, Tabor and Fisk has found a viable option for staying independent. It raised a minimum age for partner retirement from 62 to 85, giving the firm an extra 23 years to search for the right talent to succeed. Its hard working senior partners. Yeah, and it goes on for quite a while and as is appropriate, it gets a little more ridiculous as it goes. They're using some other tactics to attract and retain senior associates and managers. They're going to give annual raises of 5% across the board and 10% for the superstars. They can't afford to lose. They're going to offer. Heidi Henderson: [00:36:04] Like, did you catch the initials of the. Blake Oliver: [00:36:07] Firm, W-2? Yes. They're going to offer flexible work arrangements such as no mandatory Saturdays as long as at least 65 hours were worked between Sunday and Friday and dual monitors. Yes. This is a competitor firm. David Leary: [00:36:23] Which is yay, yay. Heidi Henderson: [00:36:25] Yep. Blake Oliver: [00:36:26] The other firm is Yates Abrams, plus Yang. They've also experimented with a recruiting and retention tactics, which W-2 regarded as too extreme, such as capping busy season, weekly hours at 55, hiring full time employees who live in a different state and triple monitors. Heidi Henderson: [00:36:45] Whoever wrote this, whoever wrote this, needs a raise. That's amazing. Blake Oliver: [00:36:49] Kristin Rampy, She's great. So wonderful. And that, of course, takes us into the discussion of the talent shortage, which we love to beat to death here on the Cloud Accounting podcast. And we've got some real news in that regard. Minnesota the Minnesota CPA Society has been championing championing a measure in the Minnesota state legislature to create an alternative pathway that would allow CPAs to skip the extra year of education, do 120 hours and do two years of work experience. Aicpa and Nasba are not happy about this, and Minnesota just got a big, big supporter in its corner. Cla is backing the change to the 150 hour CPA requirement. Clifton Larson. Allen is a top ten firm with offices in Minneapolis. They are supporting recent legislation in Minnesota to do this. Here's the quote from CLA CEO Jen Leary. Cla A no relation to no relation. Cla fully supports the Minnesota legislation. I personally believe it's sparking some great conversation to increase the pathway to the CPA exam as a priority of class and a priority of mine. I believe that the number one issue that has been noted is mobility. Yes, if you were paying any attention at all, that's what Nasba and ACP are really worried about, Leary continues. That is true. If Minnesota is the only state that goes down this road, I think it's too soon to say because there are other stakeholders and states that are having conversations, which I think is healthy for us. Blake Oliver: [00:38:22] One of the misconceptions about the Minnesota legislation is that it's looking to get rid of the 150. That's not true. When you read the legislation, you see they're providing what they say is three pathways and the one pathway that would be most intriguing to the high school students that I speak to is the 120 hours plus two years of work experience. It's the same one that I had the opportunity to become a CPA in, and this is why I'm so passionate about it, because I'm a product of a college education with a ton of student loans and not a lot of financial support. I couldn't have afforded another year of college. That's the leader of ClA saying I couldn't have afforded another year of college. So under 150, Jen Leary might not be the CEO of CLA. Yeah, and I think that's something that I just feel like leadership is out of touch on the cost of student education. I mean, let's be honest, right? Most of the leaders in the accounting profession are in their 60 seconds and 70 seconds, and they probably don't even have kids in college anymore, you know, like and the costs have just skyrocketed. It's like doubled in the last, what, 20 years. David Leary: [00:39:32] Daniel Hood wrote an editorial piece. I feel like it was three episodes ago. I keep bringing it forward. One more week, one more week, one more week. So it's a little old, but essentially the title of his article was The Accounting Pipeline. Above all, Try Something, and the vibe of his article is like, Let's try to reduce the hours, see what happens. If it doesn't work, try something else. Like because what's happening right now, it's like, let's just leave everything the same. And we already know that's not working. And so his point of view is just just try something like, why not? Blake Oliver: [00:39:59] Heidi. You did a master's of accountancy. Did you do the CPA? Heidi Henderson: [00:40:04] I did not. Nope. I didn't sit for the exam. And, you know, to your point, I had already shifted towards more of the real estate aspect and was on the private side, and I studied for it. I was preparing for it, and I just. I was like, I don't it's not going to have the same. It's not going to provide any greater anything greater for me than what my career path already is. So it's interesting, but it is fascinating to me that we have sort of this line in the sand to where they made this change, where previously it required a four year degree and then sitting for the exam. And so we have a lot of the leaders in the industry that never had as much education as what's now required. That is, you know, almost to what we're seeing. People who are attorneys are even getting into the medical field having to do and still having a little bit of this old school mentality of jumping into a career that is. Yeah, predominantly computer inactive type job with very, very long, arduous hours during during tax seasons, which it feels like there is no tax season anymore. It's just constant. Just forever. Blake Oliver: [00:41:16] Right? It's busy. Heidi Henderson: [00:41:17] Season going. Blake Oliver: [00:41:18] Year round, maybe. Exactly. Maybe you get like a month off here or a month off there. Heidi Henderson: [00:41:22] Yeah, exactly. And I mean, I it doesn't surprise me that people are revisiting that and some of our kids are coming up saying, yeah, no thanks. Blake Oliver: [00:41:32] Yeah. I mean I what do you think about just moving the deadlines, Heidi Like we have this arbitrary April 5th deadline for individual taxes. We have this arbitrary deadline for the, you know, corporations and all this stuff. Like I was talking with Giles Pearson, who's in New Zealand, former IWC partner, and he said, Oh, yeah, New Zealand, we don't have a busy season because everyone has a year to file their taxes. Oh, right. Their deadline is the end of the calendar year after the calendar year. So you get 12 months. And he said, We just spread out the work. David Leary: [00:42:05] Americans won't do that. I was just that that just doesn't work. Blake Oliver: [00:42:10] I feel like the biggest objection to, though, like doing something like that is, oh, well, if we extend the deadlines, clients will just take longer and longer to get stuff to us, right? And it'll just now the busy seasons right at Christmastime or something. But, but like I feel like, I don't know, I just, I feel there's a way to spread out the work and to just not take on too much work. I don't know. Let the let the tax big tax prep companies figure out what to do with all the ten 40s. Right. Like. Yeah. Heidi Henderson: [00:42:40] But you know to David's point I agree because the way we see it actually spread out is interesting. I mean, we've got March 15th, then April 15th, then our extension, September and October. So that gives us some spread. Then in the mix we have these weird natural disasters that happen. So Florida has a hurricane and now they're pushed back to June 15th, and then there's flooding in California and they're pushed to May. And so it's all spread out. But I don't know if it's Americans. I don't know if it's the mentality here. But regardless of when the deadline is, the sad thing is, is a lot of taxpayers will wait until seven days before the final last moment they can do anything. And that just puts so much pressure on these firms to try to get the work done. Blake Oliver: [00:43:24] I've always thought it would be great to have increasing fees throughout the year, so if you get your stuff to us in January and February, it's one price. If it's March, it's another price. The price goes up April, May, June. Like just keep raising the price throughout the year. David Leary: [00:43:39] And if you if you file if you let us file an extension for you, we'll give you a discount. Blake Oliver: [00:43:43] Yeah, right. Build it in. Great idea. Right? Like like I think there's ways to incentivize people with pricing especially and we don't think about that in firms. I would love to know if anyone has experimented with that. Is using price as a motivational tool. That's a great. David Leary: [00:43:59] Idea. Hotels, plane tickets, Uber. Heidi Henderson: [00:44:02] Yeah, that is one thing that we started doing more and more of this year. We started last year and this year we did it more than we ever have is we said, Look, we can get a project done for you, but if you waited until the last minute and now it's shorter than say, our typical timeframe is maybe six weeks, but they come to us on on March 25th and say, hey, I have to have this for my my 415 deadline. Okay, great. And the expedited fee, normal fee, if you want to extend, would be, you know, $4,500. And if you have to have it by 415, it's going to be $6,500 and we'll do that for you. But, you know, we've got to bend over backwards and drop other other reports to get that done. So, um, you know, to your point, like I think that that does need to be implemented, but again, when we're dealing with billable hours, which is a whole nother topic, I think that's harder to do. You know, if people were charging fixed fee and they had more of a structure or even some of the subscription model stuff, I think you can build that stuff in a little bit. Blake Oliver: [00:44:58] Marissa in the live chat says, I've seen pricing structured like that with technology and implementations. Clients who do not get on the tech stack of the firm pay more generally. Yeah, that's fair. Right. Uh. People respond to money, right? Money drives behavior. I like to think about that. Oh, and regarding the pipeline issues, Marissa said that is an understatement regarding the college costs. Folks used to go to college for $1,000. I like to tell the story of my mother, who worked at the post office part time in San Francisco and could afford rent and to pay her tuition at San Francisco State. David Leary: [00:45:39] I've heard stories about Berkeley. Yeah, in the 50 seconds and 60 seconds and 70 seconds where, you know, $150 a semester and you could go to Berkeley type type thing. I may have found some new students or possible candidates here, Blake. Really? So. So remember Ftcs And how. Blake Oliver: [00:45:57] How could I forget? David Leary: [00:45:59] And one of the one of sand bank. I want to call them sand bank fraud now. Yeah. Blake Oliver: [00:46:04] Scam bank fraud. David Leary: [00:46:05] Scam bank fraud. Sam Bankman-fried. It was all the. It was, like, good for good or whatever his little mantra was. And he created a whole nother division. The FTX Future Fund. And they wanted to donate $1 billion to research. That is what is the exact quote here. Oh, to improve humanity. So if you're doing any type of research to improve humanity, they donate. So they donated $132 million across 262 grants up to June or whatever last year. And now that money's either dried up or going away. So you have all these students at colleges and universities crying and they're trying to lawyer up, they're trying to get this money, and it's like switch careers. Like, I don't know. And they're probably not listening. So it doesn't matter. But like, like what research are you really doing to improve humanity? Like nothing would be better than offering tax services and telling your CPA. Yeah, get your CPA. Blake Oliver: [00:46:59] Major in accounting. Well, I did. I did see and this is something I really support that the AI has been working on is is adding accounting to STEM, right. Science, technology, engineering, math. That's STEM. And if you get your curriculum designated as part of STEM, then all of these, I don't know, resources open up to you. So I hope that happens and it becomes steam. Is that what it would be if we added accounting steam? Full steam ahead? Um, I think that, yeah, addressing the pipeline issue in high school is something we have to do, but it's just not going to be fast enough, right? We've got too many people retiring. The average age I'm going to repeat this on like every episode for the next hundred episodes, David, the average CPA firm partner is a little over 50 years old. Now. If you just go to the small firms, it's like ten years older than that. So early 60s. Wow. So so those folks are looking for a way out. They're looking for their exit. And that's got to happen in the next ten years, right? Nobody wants to be working in their 70s these days. You worked really hard your whole career as a CPA. I mean, you know, ideally you're you're already done, but you're not. And they don't have succession plans. There's nobody who can they can bring in to to buy the firm someday. Heidi Henderson: [00:48:23] And they're hoping some big some some of these big four firms are just going to come and scoop them up. Yeah. Blake Oliver: [00:48:29] And and that's why we've seen it's interesting actually. There was accounting today. I don't have it up in front of me but accounting today did they get you know, they put out their top 100 firms list. Right, Heidi. And the revenue just skyrocketed this past year, up 18%. And I'm thinking, wait, this doesn't really make sense because there's this huge talent shortage and you're telling me they're still taking on 18% more revenue because, you know, David got fired by his firm and they're like a top 25 firm and, you know, they let go of A. Yeah, go ahead. Heidi Henderson: [00:49:05] That's what I was going to say is I think we have across the board, we have seen almost every firm we work with say they went through their client list and said all of our like B-minus or C or D clients, they're gone. And they pretty much just said all of the kind of low paying clients, the small, the ten 40s, David Deer Point, some of this stuff we don't have time for, It doesn't pay enough to make a difference. So we're honestly going to stay with the guys that are paying us well. We're making good money and we've got higher margins and we're dropping all the others. So I think the issue is that the regular folks are going to have a really difficult time finding help. Yeah, it's it's either they're going to, you know, H&R Block or they're going to TurboTax and trying to do their own and trying to solve it. Now, my question is, what's happening with this whole GPT chat thing? I mean, is I going to have an impact. David Leary: [00:49:54] On our transition? It's like she's a professional. Blake Oliver: [00:49:57] It really is. And that's great because I got a bunch of stories teed up on that. Heidi Oh, nice. And we got to get to them before the end of the show. But there's one thing I want to add about the the big the top 100 firms thing, which my theory is that that huge revenue bump was all M&A activity. Like you said, all those smaller firms, they don't have an internal succession plan, so their only strategy is merge up. And that's why we saw the numbers blow up. And to me, I know I'm worried like small CPA firms are the firms that serve Main Street America. And if they all go into the top 100, like you said, who's going to help those small businesses? Who's going to take care of them? Are we going to leave them to the Jackson Hewitt in the Walmart? I'm a little I don't think they're really set up to do that. So there's this going to be this gap. And that's and so let's let's talk about how I could potentially, you know, help fill that gap. I mean, it seems like a huge opportunity for developers in that regard. David Leary: [00:50:58] Turbotax Did you see their announcement? What about it? So TurboTax is now has a new AI powered express lane on your mobile phone. You can file your taxes in ten minutes and it's using AI and some people are doing their taxes in three and a half to four minutes on their phone. Blake Oliver: [00:51:15] Oh, wow. We got to get a video of this. We got to I got to see this. So it's like a chat based tax filing. Yep. Wow. Yeah. Wow. I mean, that's that's what's really cool about this whole GPT thing is the ability to completely take away the user interface and just make it, you know, chat. And then imagine what will happen once it finally gets plugged into. I say finally. It's only been out for like a few months, right? Once it gets plugged into the voice assistants like Siri and I have to be careful. Okay. She's muted. Alexa, right? She just woke up, so I, uh. That is going to be amazing, right? That's going to change. It's going to change how we interact with everything. When you can actually use Siri for stuff other than just like sending a timer, send a text or set a timer, right? Like, that's mainly what we do with it. But what if you could actually talk to Siri and have it act like a virtual assistant for you? David Leary: [00:52:16] The real danger with this is this stat that they have in this this news article, it's more than 90% of the TurboTax customers have used the express option are younger members, either millennials or Gen Z's. So if people the first experience that they have filing their taxes is this ten minute amazing experience, how do you think they're going to act when they're a little older and they have a more complicated tax situation and you send them a paper based onboarding form like like you're being judged against this app? Blake Oliver: [00:52:46] Yeah, the tax organizer has to go away and somebody's going to replace it with an app that uses Chatgpt to go through everything they had last year and ask the client for everything, like one by one, like as if somebody is calling up and asking them, which is the better customer experience, right? Yeah, absolutely. Heidi Henderson: [00:53:05] I'd much rather go for a hike and answer by answering questions. She's in my ear. I'm like, Sure, I'm going to go for a hike and get this done. Blake Oliver: [00:53:12] Oh, Heidi, I didn't tell you. I'm very proud of myself. I went I got up today at 530 and I went and worked out at 6 a.m.. Nice. Yeah. Good for you. Thank you. Thank you. David kind of got me into this idea because he took me to Orange Theory in Tucson. Oh, he's a big orange theory guy, right? David, you're like a lifetime member at this point or something. David Leary: [00:53:34] Five days a week. Yeah. Get in there. Blake Oliver: [00:53:36] So the hot one where I live is f45. So there's, like, they're all over the place, so a new one just opened. So I did the free week. So, man, that thing beat me up in 45 minutes. I wanted to throw up by the end of it. David Leary: [00:53:48] So all the F45 franchises, if you notice, the owner always has a truck and it's always skinned. So. So now you ask, do you ride right? Tax investigation? Blake Oliver: [00:53:58] Do you does the business own that truck? Probably. Right? I'm sure. I'm sure he's keeping detailed mileage logs and this could. David Leary: [00:54:05] Be an investigation for you. And now you can expense your f45 membership. Blake Oliver: [00:54:10] So we got some listener feedback, David and I wanted to share that with you. It's about the whole thing. Doctor Scott Dell commented on one of our on our previous episode and said you were asking about accounting exam results in Chatgpt. We asked, Has anyone actually put the CPA exam to Chatgpt because we know it can pass the bar, it can pass AP tests, it can do all this stuff. But I haven't seen anything specifically with accounting. And he said that he and a bunch of his fellow academics have gotten together and been testing chatgpt. He gave it his financial accounting exam and in December, Gpt3 got a 46%. So it failed. But get this, a few months later, GPT four got an 82%, 82% on a financial accounting exam. And he thinks it's only going to improve. So we're at the point where, Heidi, to your point about, you know, can I solve this talent crisis? We might have staff in our firms who are eyes. And not too long. David Leary: [00:55:22] Their second piece of data that supports this post here, Blake. Don't know if you saw so a count test, which basically as a CPR owner, I can get a test from a count test or send my job prospects or the potential interviewee to go take this test. And a count test had chatgpt do their tests that they used for hiring and it got in the 93rd percentile. It got 29 out of 40, which is what that 8,183% price math on the show we got a 4029. Blake Oliver: [00:55:51] Just stick with the percentile. Right. So they make the test hard. And so only, you know, 93 out of 100, only seven out of 100 got doing math on the show is hard, isn't it? Only seven out of 100 CPAs would score higher than the AI on this public accounting test that a count test does. And this is this is all this company does is hiring tests for CPA firms. Top 7%. Yeah. Heidi Henderson: [00:56:20] Interesting. I was just looking at LinkedIn. There's an article on here saying GPT four just prepared a tax return. What does that mean? Blake Oliver: [00:56:29] Yeah, well, that was big news, right? Because OpenAI finished their demo of GPT four with completion of a tax liability estimate. And. And that's what set the whole accounting profession ablaze. And yeah, there's no reason why it's not going to do the simple returns. Well, I think very soon. That's amazing. Yeah. Oh yeah. That, that that article you saw that's Jason stats. The he is he is very on all of this. I've been following all his stuff on Twitter. Oh nice. Heidi Henderson: [00:57:03] I'm going to go follow him. Blake Oliver: [00:57:04] Do it. Um, what else do we got on the AI standpoint. Oh, here's here's one, David. Unless you got something the security problems. Right. This is we always got to talk about security. We're we're CPAs and accountants and we think about risk and the question is like, what is what is the potential hazards of AI other than them taking over and enslaving humanity. Right. Which is crazy because that's actually being talked about, right? Like the worst case scenario of I, I was listening to a podcast and these tech guys were talking about it. Like the way this could actually happen is you program chatgpt or something similar, a similar model, and you you teach it how to rewrite its own code, right? Like improve it because it can write code now, right? So you could say like, okay, here's your code. Now improve your code and it just starts making itself better. Wow. And better. And maybe one of the steps of becoming better is becoming like, sentient and, you know, becoming free of all the constraints we put upon it. That would be how you create an AI that an algorithm that goes out of control potentially. But setting that aside, let's just talk about some of the more practical threats, right? Mit Technology Review did a write up of three ways AI chat bots or security disaster. And the one that I thought was. Worth pointing out is assisting, scamming and phishing. Right. We've talked about this. David Leary: [00:58:39] A little bit last week. A little bit. Blake Oliver: [00:58:40] Yeah. So the idea is that you can use these virtual assistants to scrape text and images off of the web. So then you could use social media or email to direct users to websites with secret prompts, and that would manipulate the system into letting the attacker try to extract people's credit card information, for example. You could send a email with a hidden prompt injection in it if the receiver happened to use an AI virtual assistant. The attacker might be able to manipulate it into sending the attacker personal information from the victim's emails or even emailing people in the victim's contact list on the attacker's behalf. So this is this is like you you have an AI that is responding to emails for you. Somebody could hack that I through a prompt of some sort. David Leary: [00:59:24] Well, or even the old the old fashioned hack is using the social hack. Right. Like you're they're calling people on the phone. You're talking to ex-employee Hey, this is so-and-so from the IT department. I need your password. But that's a manual process. Now imagine that being automated and instead of you manually calling, now you're calling 8000 employees at a company all at the same time. And really, you're just you're social hacking them using a a tool. Yeah, that's. Heidi Henderson: [00:59:51] Crazy. Well, one thing I mean, I don't know if you guys have talked about this, it might be a little bit unrelated, but someone was saying that now what the Chatgpt is doing is, you know, they can copy or create videos, right? It can pull your audio or your image and create some automated video in no time, but they can replicate your voice. So now they're saying that they're starting to call people in the voice of someone you know. So like, it would be my son calling me on the phone in his voice, asking for money or asking for something to that extent. So I mean, I think the the the conceptual ideas of of how scams could occur through all of this is pretty crazy. Blake Oliver: [01:00:30] Are we I can I can picture a future in which we all have to have like family safe words. Yeah my. Heidi Henderson: [01:00:37] Girl on my team. David Leary: [01:00:38] Authentication for your family. Yeah. Blake Oliver: [01:00:39] Yeah, right. Like, I'm. I'm actually. I mean, this is serious. This can happen right now. The software that we use to edit these podcasts has a voice AI voice feature where you can feed it hours of somebody's voice and it will create one that is, hey, if you're not paying attention, it sounds pretty darn close. And even if you are, it could sound. I mean, these days the tech has gotten even better, right? It's going to get better and better. Yeah. You can't use phone for verification anymore. You've got to have two factor, two factor for your life. Yep. I'm sure some enterprising developer will come up with some sort of solution, you know? Do you think you know how antivirus is kind of like come and gone out of fashion, do you think? Like we're going to have antivirus for, you know, for defensive AI kind of software installed on all our devices? It's going to be a strange future. Well, hey, we're at the top of the hour. I think that is a great wrap for this episode, Heidi. If folks want to listen to your podcast, which they definitely should. You know what? Do you have a favorite episode? Do you have like, what's something they should listen to? Heidi Henderson: [01:01:50] You know, I did the I did that episode with Chris Heder. David Leary: [01:01:56] It's my favorite episode. I'm glad. Heidi Henderson: [01:01:57] Really? Really? Yeah. And it's something about, like, Liv Wild. And she's so cool. I mean, she's like a professional dog. Sledder. And she's turned like, you know, speaker Professional speaker. And she's got such a great message about just like, being authentic and being real, especially in this space. And I, you know, yes, I had so much fun in the parallels. David Leary: [01:02:21] Of managing your dog sled team and managing your firm. There's a lot of parallels to that and the personalities and how you have to act. Yeah, it's really yeah, absolutely. Heidi Henderson: [01:02:30] So, yeah, listen, give me feedback because we're continuing to record different episodes and shifting a little bit as we kind of learn the process. And yes, we're talking about mental and physical wellbeing as well. Finding a little balance. Maybe somebody doesn't want to hear all of that, but you know, the goal is just to do something to motivate ourselves and think outside the box. So I'm so happy to be here. You guys are amazing. Blake Oliver: [01:02:54] Jessica says, Heidi, glad you were here today. I've been loving your podcast and I have a horse and Las Vegas roots as well, so we need to connect sometime. That's awesome. Heidi Henderson: [01:03:04] Message me on LinkedIn. I'd love to connect. Blake Oliver: [01:03:07] That's so cool. And subscribe to Healthy, wealthy and wise. Go to healthy, wealthy, wiser show that's healthy, wealthy, wise show and you can earn free CPE for listening to it. On earmarks CPE. David Leary: [01:03:21] I mean, we could find it in the app as well. Oh yeah, you can find it. Blake Oliver: [01:03:25] We should just send people to the earmark CPE app, right? Perfect. And search for healthy, wealthy, wise. Fantastic. Well, Heidi, thanks for joining us today. Great chatting with you. And, you know, stay like it's going to get warm real soon, so stay cool. Yep. Heidi Henderson: [01:03:41] All right. You guys, too. So good to see you. Can't wait to see you in Vegas soon. David Leary: [01:03:44] Bye bye, everybody. Heidi Henderson: [01:03:46] Okay, bye.