Balancing Life, Taxes, and Real Estate: Insights from a CPA's Journey

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Discover the fascinating journey of Brad Dower, a CPA who found his path to success through an unexpected route, including a transformative stint in the Marine Corps. In our latest episode of the Key Factors Podcast, Brad shares how he transitioned from the rigors of working long hours at an accounting firm to establishing his own business with a focus on work-life balance and family priorities. His story not only highlights the importance of balancing professional and personal life but also delves into the economic pressures of changing retirement ages and life expectancies. Celebrate with us as we also acknowledge our producer JC's birthday during this engaging conversation.

Shifting gears, we delve into the lucrative world of real estate and taxation, offering valuable insights for homebuyers, investors, and realtors alike. We discuss the potential tax benefits of homeownership and explore strategies for minimizing tax liabilities through real estate investments. From cost segregation studies to the differences between commercial and residential real estate investing, we cover essential tips for maximizing deductions and maintaining meticulous financial records. Learn how to leverage these insights to make savvy financial decisions and achieve greater financial success.

Finally, we unveil essential tax strategies tailored for self-employed realtors and real estate investors. Get expert advice on maintaining accurate records, maximizing deductions, and saving for taxes, while exploring the benefits of achieving Real Estate Professional status. We also dive into recent developments concerning the Beneficial Owner Information report and offer practical tips on employing family members for tax advantages. This episode is packed with actionable insights and expert advice to help you navigate the complex world of tax planning and real estate investing with confidence.

Key Factors Podcast is Powered by ReviewMyMortgage.com
Host: Mark Jones | Sr. Loan Officer | NMLS# 513437
If you would like to work with Mark on your next home purchase or as a partner visit iThink Mortgage.

Episode Transcript

Speaker 1 (00:36):
Matter of fact, go to his view real quick, this weird
one that I have camera three.
It's a good view.
Yeah, jump away, okay.
Okay, jc, I am ready.

(00:58):
When you are, I'm ready, okay.
Key Factors Podcast.
Here we go in three, two, oneand welcome back to another
episode of Key Factors Podcast,real Estate AF, where the AF
stands for and finance, and I'myour host, Mark Jones, and we
are powered byReviewMyMortgagecom, the largest

(01:20):
index of mortgage programs inthe nation.
And on the previous episodes,guys, we've been talking a lot
about business planning.
We talked about potentialprojections for 2025 and giving
you guys some true experts inour industry.
Well, today I wanted to kind ofgo by that old phrase that

(01:42):
you've heard more times than not.
There are two things in thisworld that are inevitable.
One is death, the other ispaying taxes, and for this
discussion, I brought along mypersonal CPA.
So, without further ado, I'dlike to introduce Brad Dower.
Brad, how are you Good?
How are you doing?
Doing well, man, doing well.

(02:02):
So, first time on a podcast,yeah, a second, okay, good.
So I'm not breaking you in, butwe are going to have a pretty
in-depth discussion about someof the nuances that come along
with having to pay taxes, bothfrom a buyer's perspective,
homeowner's perspective,realtor's perspective

(02:27):
perspective, homeownersperspective, realtors
perspective, entrepreneursperspective.
And there's plenty that we cango into.
But before we do, I want togive you a moment to kind of
tell our audience who you are,where you came from, why you got
into the business going thisroute.
So if you could tell us alittle bit about yourself, Okay,
yeah.

Speaker 2 (02:41):
So I took a non-traditional route into
becoming a CPA.
I joined the Marine Corps afterfailing at college.

Speaker 1 (02:48):
the first time around , semper Fi?
No, I hear you.

Speaker 2 (02:50):
So I had to grow up a little bit, which the Marine
Corps did that very well Endedup getting married and then went
back, got into accounting andit really made sense, Went back
to college.
I really enjoyed it.
And then, of course, the more Ilearned about taxes and being a
CPA and everything you know, Igot tired of cranking out 80
hour weeks and the boss gettingrich, so I started my own firm

(03:11):
right.

Speaker 1 (03:12):
Yeah, what is that phrase?
The boss comes in, you see theLamborghini and he says if you
do well and work really hardnext year, I'll get another one.

Speaker 2 (03:23):
That's right.
And so, yeah, I started my firmand, as I had grown up through,
you know, I got an email from amanaging partner at a larger
firm that said you know, hey, weknow everybody's working 80
hours billable, but need you towork more.
And so my goal with my firm wasreally to kind of get some more
work-life balance.
I mean, as a business owner, wealways work a lot Right.
I mean, as a business owner, wealways work a lot Right.
But then, at the same time, Iwant to be able to spend time

(03:45):
with my family.
Our motto is go to the kids'ballgames, right, absolutely.
And so family comes first.

Speaker 1 (03:50):
Yeah.

Speaker 2 (03:56):
And so trying to break the traditional accounting
mold in that, with my firm andso all of my employees, kind of
live a double win at work andlife, right, because yeah that's
the goal.

Speaker 1 (04:05):
It's the goal.
It's balance we were talkingearlier.
Right, it's hard.
It is hard, it's something thatwe won't strive towards, but,
as we've talked about inprevious discussions, I almost
believe it's a pipe dream untilyou deserve it, and what I mean
by that is did you put in thework in the right places for the
right amount of time, in orderto have that so-called balance
that we want to say?
Because, let's face it, theretirement age is increasing and

(04:29):
, for some odd reason, the lifeexpectancy is decreasing these
days.
So we all want that form ofbalance in some way, shape or
form.
But the idea is put in thatwork and I can see you're doing
that, I can feel you're doingthat.
A couple of questions for you.
I mean, did you grow up here inTexas?

Speaker 2 (04:48):
So I grew up in the DFW area Okay, small town in
Bartonville, so kind of nearDenton.

Speaker 1 (04:53):
Yeah, what is that up there, unt?
No, what is the college that'sin Denton?

Speaker 2 (04:58):
UNT, unt, okay yeah.

Speaker 1 (05:00):
Very good, I can either I cannot confirm or deny
being in parties there in mycollege years.
A lot of good bands came out ofthat area.
Yeah yeah, Eli Young BandBowling for Soup, Deep Blue
Something.
And, ladies and gentlemen, thatis our co-host, co-anchor
producer behind the scenes, JC.

(05:20):
So if you can throw yourself upon the screen real quick, JC,
so we can let everybody know.

Speaker 2 (05:26):
Happy birthday to JC.

Speaker 1 (05:27):
Happy 48th birthday to the man behind the curtain.

Speaker 2 (05:33):
Thanks, man.
I feel it Happy birthday, Thankyou.
Thank you, carry on Carry on.

Speaker 1 (05:39):
So, brad, with the idea of you not necessarily
thinking that you were goingdown the road of accounting, uh,
becoming a CPA, all that goodstuff, what, what were your
intentions?
I mean, were you a wild child?
What was the, what was the uhpath that you were going through
that led you to going throughthe Marine Corps and everything

(05:59):
else?

Speaker 2 (05:59):
So, I had a great time in college my first time
around.
Okay, that sounds like you didtoo.
Yeah, so I had a great time incollege my first time around.
Okay, that sounds like you didtoo, yeah, I went to A&M and
they asked me not to come backfor a second year.

Speaker 1 (06:10):
Okay.

Speaker 2 (06:10):
So a little bit of soul searching.

Speaker 1 (06:12):
That sounds so familiar.
I was at McMurray and Abilene,that's funny.

Speaker 2 (06:18):
I got married super young and was basically a
full-charge bookkeeper at aconstruction company, okay, and
I was like 22, and I'm like, amI really maxed out in my salary
and everything and terriblemarriage at the time.
You know, get married young, weall change.

Speaker 1 (06:34):
Absolutely yeah.

Speaker 2 (06:35):
And it's like well, I always wanted to join the
Marine Corps and the reason Ididn't join the Marine Corps out
of high school was because ofwho was my wife at the time.
Sure, women make you do crazythings, right.

Speaker 1 (06:45):
Oh my gosh.
Yes, but all the while, isn'tit that they're the ones that
are crazy?
Wait a minute.
I didn't say that.
I didn't say that.
Fast forward, fast forward.
Is there a oh, there's not.
Oh, this is live radio where Ican hit a dump button.

Speaker 2 (06:58):
Yeah, so it's just a passion and what I always wanted
to do, and so I basically toldmy wife who's my ex-wife now
that I was like, oh my goshpause.

Speaker 1 (07:10):
I am so glad you said that, because leading up to it
I was like holy shit.
I hope that your wife is notgoing to watch this talking
about her like that.

Speaker 2 (07:19):
My wife is amazing.
She's the brains behind all theoperations.
Love it.
She has the hard job with ourtwo boys.
Trying to raise two boys is achallenge at best during most
days I tell everybody we havenothing nice because it's not
our boys destroying it, it's ourtwo large dogs that are 100,
150 pounds.
You know boys have broken TVsand windows All the horror
stories you can think of.

Speaker 1 (07:39):
Yeah, it's why you can't have nice things.

Speaker 2 (07:42):
That's right.
And it's like should we redothe house?
Let's see, the youngest is 11.
We got eight years.
Then we can do stuff to thehouse, you know.

Speaker 1 (07:48):
Smart move, smart move.
Yeah, I have one, and he'srambunctious enough which is not
to fall far from the tree thathe came from.
Does that make sense, ta-da?

Speaker 2 (08:01):
It makes sense.
And so, yeah, I mean I justneeded to grow up, I think all
you know.
I told my oldest who's 16.
So that's challenging too, andI said I can't wait till you're
28.
And he goes what do you mean?
I said, because then you'regoing to realize mom and dad
were right and you won't be ajerk to us anymore.

Speaker 1 (08:15):
That's so true.
It's so true, and so.

Speaker 2 (08:17):
I needed that time from kind.
You're just trying to have agreat time and figure out life
and figure out who you are morethan anything, absolutely and
until you know.
So, having that family andeverything it definitely brought
me back.

Speaker 1 (08:29):
Yeah, so, but it's, it was difficult and mentions
CPA or accountant or taxpreparer.
They all of a sudden think thismonotone, clear eyes, dry eyes

(08:56):
type of person.
And since the first time I metyou, that is just not you and I
appreciate that.
But how is it that someone likeyourself gets along with things
like tax laws and accounting etcetera?

Speaker 2 (09:13):
Accounting and taxes just made sense to me.
I don't know what it was, itjust resonated, you know, when
you're going through college andstuff.
I never had to study foraccounting or tax.
I never had to study foraccounting or tax.
Of course I was sort ofstudying because I was going to
college, I was working full timefor a CPA firm and so I was
studying eight to 10 hours a day, 12 hours a day, right and so

(09:33):
if you want to look at it thatway, but it just made sense.
I enjoyed it.
I enjoy numbers, I enjoy Excel.
I know everybody I'm gettingbooed now.
No, no, you'd be surprised, man.

Speaker 1 (09:42):
I think as technology progresses and time evolves,
people are getting moreacquainted with the idea of what
Excel can actually do for them.
If they create the correctformulas in their spreadsheets,
et cetera, it saves you tons oftime.
I'm not a mad scientist withthat, as I am like with coding

(10:02):
or building websites just yet,but I know it's a necessary evil
.
That is kind of fun seeing itactually work when you put the
right equations into the system.
And then you mentionedsomething else about it making
sense.
Like I always say, if it makessense, find a way to make
dollars out of it.
Right, because they all add up.
So there was a poll of about athousand people that were asked

(10:26):
what the first thing that theythink of when they think of
taxes.
And it says most people viewedtaxes as necessary but often
frustrating part of life.
And it gives us the otherfrequent answers that they give,
starting with the negative.
It says they view them as aburden, the complexity of them

(10:47):
is too great, the lack oftransparency and knowing what
you're actually doing.
And the last negative is unfair.
And then it goes into thepositive ones necessary for
society, civic responsibilityand progressive system
approaches leading to potentialgains, then the mixed feelings

(11:10):
are definitely desire for reformand reluctant to accept the
changes.
You being on the other side,the other seat, would you agree
with some or most of thosestatements?

Speaker 2 (11:25):
Probably none of them .
Okay, and why the big one?
To me, it's not your civic duty.
It's your civic duty to paytaxes.
However, it's your civic dutyto pay the least amount possible
.
And so tax law is.
There's 20 to 30 pages in thetax code on how to collect a tax
.
The thousands upon thousands ofother pages are how not to pay
tax.
So you have to change yourmindset on what the taxes are.

(11:48):
The government is trying toincentivize behavior, and that
is really what taxes aredesigned to do is incentivize
behavior.
You know, if you can be abusiness owner and have
employees, you're going to gettax breaks.
You know if you're going to bein real estate, you're going to
get tax breaks.
Real estate is one of thesingle graded asset classes to
never pay tax again in your life, if you do it properly,
wherever you stand politically.
Trump he makes millions ofdollars and they release his

(12:10):
taxes and he paid a hundredbucks in taxes.
My question was why do you paya hundred bucks?
And he's a better tax advisor?
Of course, I don't want to bethe tax advisor because his tax
advisor went to jail.
I'm not going to commit fraud,but at the same time, he's in
real estate, right, and so it'sthe single greatest way to never
pay tax again in your life ifyou do it properly.

Speaker 1 (12:32):
And that's a great way to open up this discussion.
I don't like to get politicalon here and our goal is not to
be political in whatsoever inthis, but that is a good point
that you bring to the table this.
But that is a good point thatyou bring to the table the idea
that the person that is creatingjobs, creating opportunities,

(12:53):
employing others, changing whatlittle that they actually can do
within the world that theyoperate in and now a much bigger
world, if we're talking aboutthe same person should get some
tax breaks.
And when I hear the other sideof the coin saying, well, they
should be paying more.

(13:14):
Well, they didn't get there bybeing greedy.
There's no way to build abusiness by yourself.
There are others that arenecessary in order to establish
a business, to grow a business,to operate a business, and I
think the level at which, or themagnitude at which, your

(13:36):
business grows, the morebenefits you should get as the
person that took those risks,the person that took those
sacrifices in order to do so.
And I love the fact that yousaid people need to change their
mindset, especially those Now.
Mind you, our audience ismostly realtors, lenders,

(13:57):
entrepreneurs.
We all have this kind ofmindset because we're in this
seat on the bus.
But for the folks that arelistening, that are W-2 employee
, this is giving you a glimpseinto the minds of not only how
we think but how we act, Becauseit is all stem from a good
place and providing morepossibilities and opportunities

(14:19):
for many.
But there would be very littleincentive to continue to do that
if there was not some type ofrelief for the people that could
get it done, if that makessense.

Speaker 2 (14:32):
It makes sense.
Yeah, I mean I learned when Istarted a business.
You know you have your time,your money, other people's time
and other people's money andyours is a limited resource and
everybody else is unlimited.
So as you can start a business,you know the bank's going to
give you money if you have asuccessful business right.
So now your, you know money isalmost unlimited if you do it
right and then start hiringemployees, you know you can only

(14:53):
work.
You can work 80, a hundred hourweeks.
You're going to burn yourselfout, right.
But now we can get somebody andget a team behind us.
You know it's.
You know business is a teamsport.

Speaker 1 (15:01):
I like that.
Yeah, definitely Okay.
So, going into some of thesequestions here that I'm sure
plenty of realtors, home buyers,home owners want to know, we
can start with the idea of let'saddress for home buyers first,

(15:22):
home buyers versus renting.
For homebuyers first,homebuyers versus renting.
There's this idea of especiallynow when everybody's talking
about home affordability someonethat is renting and it's simple
to say well, you're throwingaway 100% of your money versus
paying interest on some of it,et cetera.
And then building the equity,what are some additional

(15:45):
benefits for someone that ispurchasing a home and we're
talking about primary residenceonly right now?

Speaker 2 (15:52):
Okay, yeah, I mean it's good and bad.
Right now They've raised thestandard deduction so high,
right?
So a lot of people's taxes didget simpler.
But if you can get, you knowtaxes our property taxes are
ridiculous.
Yeah that's true.
And but if you can get you knowTexas, our property taxes are
ridiculous, yeah, that's true.
And so you can deduct yourproperty taxes right, and your
mortgage interest are kind ofyour big ones, correct?
And so if you and everybody'smortgages now are a lot higher

(16:14):
than they used to be, you know,my first house was $120,000,
right, three, two, two cargarage, and now the same house
is like 400 grand.

Speaker 1 (16:21):
Wow, house is like 400 grand Wow, wishing you would
have held on to it.
I know right, it's like dang it.

Speaker 2 (16:24):
I should have held on to it, but it's like you know,
at the same time I had to sellmy Amazon stock to buy that
house.
If I held on to that, weprobably wouldn't be sitting
here today.
I'd be sitting on the beachsomewhere, oh my gosh.

Speaker 1 (16:34):
What's funny is yesterday I saw a post about
Bitcoin and 2020.
I owned a full Bitcoin.
Matter of fact, we forgot toput the cost basis and that's
why we ended up on my amendedreturns, but the idea is, if I
would just held on to it, oh mygosh, it would be absolutely.

(16:55):
I think it's at $106,000 forone Bitcoin today something like
that, something like that.

Speaker 2 (17:00):
It went over a hundred thousand over the
weekend, I think.

Speaker 1 (17:02):
Whoa.
But yeah, you never know andyou can't foresee the future on
things like that, but the ideaof owning a home is something
that a lot of folks tend to shyaway from when they're looking
at pinching pennies and tryingto sustain their current
lifestyle.
When it comes to those expensewrite-offs deductions that

(17:27):
you're talking about, are thosebig game changers or are they
just small gains, or does itdepend on what you're doing with
other income that make thembigger or less of a benefit?

Speaker 2 (17:40):
You know, this is the tax standard answer.
It depends, right?
Yeah, you know what I say?
The same thing.

Speaker 1 (17:45):
And it means more so that you're an expert, because
you don't give some blanketresponse to a broad question
like that.
But go ahead.

Speaker 2 (17:54):
Yeah, I mean so if you can get over the standard
deduction, right.
So as a married couple we'reroughly around $30,000 now,
right, okay, so that is going toyou know, and your state and
local tax is maxed out at$10,000 now.
But then, so, really, mortgageinterest so if you are paying
the mortgage, interestdeductible but then it gets into
your charitable contributionsis kind of the key three things

(18:14):
that are going to go into youritemized deductions.

Speaker 1 (18:16):
Okay, repeat that one more time for our listeners.

Speaker 2 (18:19):
You've got.
So you have your state andlocal tax, which maxed out at
$10,000.
And then you have mortgageinterest.
And then, on mortgage interesttoo, if you have a second home,
they can deduct that too.
And a second home can be likean RV.
So if you have a recreationalvehicle, you can consider that
your second home.
It's kind of one of that grayarea tax loophole things, okay

(18:40):
gotcha.
And then your charitablecontributions is your big third
one.
You can deduct medical expensesas an itemized deduction.
However, it's limited to sevenand a half percent of your
income and so most people youknow if you're making $100,000 a
year, you know then you have tospend over $7,500 in that
example, right.
To be able to deduct any kind ofmedical expense and so and that

(19:00):
before you see a dollar ofmedical expense I see, and so,
unless you have somethingcatastrophic happen, you're
really not deducting medicalexpenses typically.

Speaker 1 (19:06):
Yeah, it's more so going to be your taxes, your
mortgage insurance and then yourstate taxes, which does fall
into what type of category whenit comes to state part, when you
hit the 10K.
How can you hit the 10K quickerthan not?

Speaker 2 (19:22):
I mean down in Texas, right Property taxes is over 10
grand, you know typically overthat so losing that?
You know if you buy a car thesales tax is deductible.
You do get a standard deductionfor sales tax as part of is
included in that area as well,and so any kind of large
purchases for sales tax you cankind of acclaim that and extra
on top of your standard salestax.

Speaker 1 (19:44):
I think think that's the one thing and we'll get into
this a little bit later One ofthe reasons why you have
realtors that buy new cars eachyear to write off on their taxes
.
But we'll get into that in alittle little bit later in the
discussion.
So that is the personal side ofbeing a homeowner.

(20:05):
It's going to help you on yourtaxes and us mortgage
professionals and realtors sayit quite often, but it doesn't
sound like it's going to be awhopping savings for them.
That's going to change howthey're living, based on what
they purchase.
So, as we lean into the nextcategory, the investor side of
things, how can you help usunderstand some of the

(20:29):
deductions, some of the ways ofpaying less taxes, bottom line,
when you're an investor?

Speaker 2 (20:36):
Sure, let's go back to the individual side real
quick, because there's a bunchof tax credits for energy
efficient homes, new doors,windows, solar panels.
It's like definitely don'toverlook those clients.
All the time when they put newwindows in their house.
They totally forget about it.
But pretty much every windowthat comes out now is energy
star certified.
Right, that's right, and so ithas to be.
Have the double pane with thegas, the gas in between them and
all that.

(20:56):
So like, don't forget aboutthose.
Is it only going to save you acouple hundred bucks?
But hey, you know, I would say,take the family to Disney World
instead of paying Uncle Sam.

Speaker 1 (21:03):
Boom.
I like that.
No, that's a great way to lookat it, absolutely.

Speaker 2 (21:07):
And then back on the investor side, it really depends
.
So, as we know, real estate islike this giant gamut.
You can do everything fromsyndicating real estate deals to
having a single family home,commercial real estate.
You can wholesale stuff.
I mean like it's almostunlimited potential on what you
can do in real estate, which isone of the reasons I love it so
much.
And, like I said, real estateis the single greatest way to

(21:29):
never pay tax again.
I love it, I love it and if youdo it properly and have a great
strategy From an investor's side, you know, if I was to give you
the 30-second clip of how to doit, you can make it longer.
This is long form.

Speaker 1 (21:40):
By all, by all means yeah, I want to make sure that
the folks out there know thatI'm working with a badass bottom
line.
So yeah, go for it.

Speaker 2 (21:49):
I mean, it's from an investor standpoint and on the
individual side too, a littlebit is, you can do what's called
the short-term rental loophole,right, okay, and so that you
there's two buckets for taxpurposes of income, as far as
when we're looking at realestate, you have passive and
active income.
So passive income is typicallygoing to be your real estate
income, right, right?
And then your active income islike your W-2 wages, and so

(22:11):
typically you can't offset youractive income from your W-2
against passive losses.
And real estate is taxadvantage, which I'm sure we'll
dive in more here due todepreciation and some other
stuff, correct, and so youtypically have a loss on tax
purposes for real estate, butthen you have a cash flow
positive asset, so you get tobasically have income and not

(22:32):
pay tax on it, which is what weall want.

Speaker 1 (22:34):
That's right.

Speaker 2 (22:35):
And so the quick way to do that is, if you want to
get a property, is to start witha short-term rental, and you
can use arbitrage and go do thewhole Airbnb thing.
There's all kinds of differentoptions, sure, and, but you can,
once you, the key to that isit's you have to keep the
average stay under seven days,okay, and once your average stay
is under seven days, it'syou're basically quote unquote,

(22:56):
operating a hotel, right, andthen so that's an active
business under the IRS viewpoint, and it's not that your stay
you can have.
You can have like a month longstay with somebody stays in your
short-term rental, right, butthen you've got to make sure
that you have somebody go inthere for a weekend, you know,
and so you can get that averagestay.
Yeah, I get your average staythroughout the whole year under
that seven day mark and that'skind of the big thing that

(23:16):
clients miss on that one.
But then you can go and doadvanced strategies.
On top of it is you can go do acost segregation study, which
is what the government wants youto do.
But that's where you basicallyseparate out what they call the
units of property on a building,and so it's everything from
your flooring to your cabinets,to your HVAC to plumbing.
You can get a cost segregationstudy done on your building.

(23:40):
And when we had 100% bonusdepreciation which I hope
they'll bring back, they've hada bipartisan bill in Congress
for over a year to bring back100% bonus depreciation.
Right now we're at 60%, so thevalue is not quite as big, but
it's better.
And if you can get, youbasically take your property.
You know so on a standardresidential property at 27 and a
half years.
On a commercial property you'reat 39 years for depreciation
and that's how long you have totake that basically the cost and
divide it over that right,right.

Speaker 1 (24:02):
To determine the depreciation.

Speaker 2 (24:03):
To determine the depreciation for the year, but
you can typically go and getaround 20 to 30% of that total
purchase price as a deductionyear one if you do a cost
segregation study.

Speaker 1 (24:15):
Wow, and I don't think many folks know that.
Matter of fact, one of theissues, the issues and this is
side note potentially rabbithole, one of the issues that I
see with many first-timeinvestors even second-time
investors is they're notclaiming their properties on

(24:37):
their tax return.
They either forgot or theythink that it is a benefit to
not put it on there so that theydon't know that you're making
the money.
But then they realize that, hey, if you go to buy another one
and you haven't actually claimedthis on your taxes, you
technically are still afirst-time investor.

(24:58):
So all of the first-timeinvestor requirements are issued
on that type of condition andit causes a lot of issues when
it comes to purchasing moreproperties, continuing to grow
your portfolio and your wealth.
Do you see that quite oftenfrom the folks that you work
with?

Speaker 2 (25:16):
Yeah, for the first time.
Yeah, they typically forgetdepreciation or they calculate
it wrong.
And if you get audited by theIRS something to know about
depreciation it's thedepreciation that was allowed or
allowable.
And so if you miss thededuction whenever you sell that
property, you're supposed toreport the deduction even though
you didn't take it.
So you're losing money and soit's a double loss, double loss.
So hopefully you don't getaudited, right.

(25:37):
But if you do get audited andthat's pretty low hanging fruit
for an IRS auditor to figure outlike oh, you didn't take the
seduction too bad, but now youhave to, and so then you're
taxed higher on depreciationrecapture anyways, and so you
definitely want to make sureyou're taking all your
depreciation on your buildings.

Speaker 1 (25:51):
Yeah, see, and that's just one thing that I've seen
happen over and over, especiallyas rates increase, we saw the
qualifications for investorsdecrease.
So they're going off script topurchase either hard money or
they're going non QM typeproducts.

(26:11):
And then the year passes, theycome and say, hey, time to buy
another one.
Oh, I didn't claim that one onmy taxes.
Well, we can't offset it.
I've got to hit you with thatmortgage payment completely.
Oh, I can't qualify for anotherone.
No, you don't, because we'vegot nothing to offset it.
And I think it's something thatcould be resolved by people

(26:33):
educating themselves a littlebit more and understanding the
idea of what you're actuallydoing, and you said it best at
the beginning you're findingways legally to pay less taxes
for your hard work and risksthat you're taking, essentially
so continuing down the road ofthe investor pool and this is an

(26:54):
odd question.
But I'm going to ask if youwere to paint a perfect picture
of and I don't know, maybe thisis stuff that you dream about at
night as a CPA, as an investor,as an entrepreneur myself these
are some of the dreams that Ihave.
What would it look like for you, a perfect scenario of someone

(27:17):
that is attempting to build a,an empire, so to speak, starting
with one.
What does that look like as itgrows?
If you don't mind me asking orgoing through that, paint me the
picture.
Paint me a birmingham what?
about some oceanfront propertyhey, as long as we're not in
arizona, yeah, go for it yeah,so starting kind of the

(27:40):
beginning in the real estateworld, it can be tough.

Speaker 2 (27:45):
I mean, like we were talking earlier, there's a ton
of different avenues to get inRight.
I steer away from residentialproperty, so all the realtors
are probably going, oh, no, no.

Speaker 1 (27:55):
And I've got commercial realtors on here.
I've got brokers?
No, not I've got commercialrealtors on here.
I've got brokers?
No, not at all.

Speaker 2 (28:00):
And the single fact is that most commercial leases
are triple net.
Now, right, If I go to aresidential tenant and say, hey,
I'm raising your rent $100 amonth, they're going to freak
out and be like we're just goingto move.
Then you've got turnover andthen you've got to go out and
repaint it potentially and fixwhatever they fix.
But in a commercial space, ifyour property taxes go up which

(28:20):
is anywhere around the country,property taxes are skyrocketing
it just gets passed through tothe tenant.
That's right and you got abusiness in there and the
business, to keep going, isgoing to make sure they pay
their rent typically.
And then if you have aresidential tenant that's not
paying their rent to a victim asa whole, it's like a three to
six month long process right,absolutely yeah, even to just
get that.

Speaker 1 (28:37):
Uh uh, notice to them , you're right.
And if it's their primary, itcould even take longer.

Speaker 2 (28:42):
And on the commercial side, you don't pay your rent
and go lock your door.
Yeah, that's right.
And so you're, as a landlordand an investor, you're a lot
more protected on the commercialside and then I mean you're
probably may not make as much,especially if you're going to go
in and flip the home and redoit and that kind of stuff.
But you know there's the BRRRRstrategy on the residential side
, which is great.

Speaker 1 (29:01):
It is when you can find the right properties, the
right trades to work on thatproperty, to flip, the right
hard money lenders that have theright terms.
It's a lot of work to get intoit and to do it right.

Speaker 2 (29:14):
And that alone, like in all of this, record keeping,
is key, having a good accountingsystem in place that isn't
burdensome.
Or if you're like, hey, I'm nota great at accounting, go find
an accountant to do it for youand you can get bookkeepers
pretty cheap these days, but Iwill say there are a lot of
terrible bookkeepers out there,yeah, and so be careful.
And you don't need to have thisin-depth QuickBooks online,

(29:38):
multiply class and all thiscrazy stuff going on, like if
you only have a few transactionsa month.
You can do a simple Excelspreadsheet, okay.
What we recommend to ourclients, too, is, every time
you've got a receipt is getDropbox or OneDrive or something
on your home screen, on yourcell phone, because you can pull
up that receipt, take a pictureof it and then you can throw
that receipt in the trash.
Digital copy counts.

(29:58):
That's right For record keeping, and so that is huge.
And then, for real estateinvestors or agents, mileage is
your number one deduction.
Typically, especially on theresidential side, they are
probably some of the hardestworking people ever.
They're driving and they seemto have no personal life.
You're like somebody calls them.
Hey, I want to go see yourhouse.
Okay, want to go see a house.

(30:24):
Okay, be right there.
You're like, yeah, you're right, they're super hard.
Every residential realtor Iknow is very hard working and
but their mileage log issomething they don't do.
That's right.
And if you get it's the numberone probably not the number one,
one of the number one over mostoverturned expenses on an irs
audit.
Oh and so what you want to getis some kind of app like mile iq
okay, great ones, what werecommend for our clients,
because then it automaticallyrecords in your background and
everybody's like oh, I'll writeit down and I'll get a log book
and then you know if you've gotkids, the kids are yelling and
screaming in the back seat orwhatever, right?

(30:45):
So you just, it doesn't happen,right?

Speaker 1 (30:46):
so I believe in automating as much as you can
yeah, you must have been my cpafor the last couple years or
something, I don't know or justany parent right I mean that's
right I can keep my kids to bequiet for five minutes.

Speaker 2 (30:57):
Sometimes I'm like, yeah, what are they breaking?
Actually, you know, it's true,and but anytime you can automate
any of it, that's really thebest you can do.
And QuickBooks is kind of thego-to, but at 80 bucks a month
most people probably don't needit.
Sure, there's other solutionsout there that you really want.
To make sure it connects to abank feed and, on that note, too
, for investors or realtors, youknow, when you set up your

(31:20):
business, you need a separatebusiness bank account.
Okay, and then get a separatecredit card.
Absolutely, because that makesyour record keeping at the end
of the year 100 times easier,because if you forgot something,
be like, oh, flew through thisbank account.

Speaker 1 (31:29):
Like this is it?

Speaker 2 (31:32):
Instead of commingling everything.
You definitely want to makesure you're not commingling
assets, because then theliability protection from your
LLC is kind of null and void andany attorney worth anything is
not only no matter, even if youhave an LLC in place, it's going
to sue you and your LLC, right,because they're going to come
after everything and so.
But if you're comminglingassets inside your business,

(31:53):
then they can come after youpersonally.

Speaker 1 (31:58):
So that leads me to a question about the commingling.
I've got a borrower situationthat we're having a tough time
with, and this is current what'sgoing on right now.
They are sole proprietorSchedule C, have never opened a
business account.
The only income that theyreceive is 1099 as a plumber

(32:19):
comes in, that's it.
All the money goes into thepersonal account and all the
expenses go out of it.
Now, mind you, some arepersonal expenses, some are
business expenses.
But from the way that I look atit is, if the only money that's
going in there is from businessfunds, should he not be
utilizing that concept?

(32:39):
Or would it not then beconsidered everything is
considered business from thatone account?
Or is it the other way around,to where, technically, if you
don't have a business account,it's all personal buddy?

Speaker 2 (32:51):
Yeah, and it's the burden of proof relies on you,
right, if you ever get audited.
Okay, and so you want to havecertain things set up in place
that when you're going throughthem and so just having as
simple as a business account,you can just go down to the
county and get a DBA.
They're like 20 bucks, right,I've got a county here I had to
go get a DBA and that way you atleast have the business.
You set up the business bankaccount and then you can always
take money out.
Everybody asks well, if I takemoney out of my account, you get

(33:15):
taxed on your profit or loss ofyour business at the end of the
year.
Right, you can leave $100,000in your business, but you're
still going to be taxed on that$100,000.
Or if you take it out and youcan add money in, it's just a
capital contribution ordistribution.
You're not really taxed on thatas long as you have what's
called basis, as long as youdon't take more money out, right
.
And if you go get a loan, have,there's a whole slew of tax

(33:36):
consequences that happen fromthat.
But that's I mean.
So there's really keeping aseparate business bank account
and keeping all your records inplace, no matter what you're
doing.
You know whether you're aplumber or you just have a,
you're a realtor or whatever.
It is keeping that separate andit'll be help you down the road
.
You know.
Hopefully you never get auditedand you never need it, but

(33:57):
you'd rather have all theinformation and be able to
provide it.

Speaker 1 (34:01):
Absolutely.
I agree with that.
Now you've mentioned auditprobably 15 times thus far I'm
going to ask ChatGPT thisquestion to see if it makes
sense.
In the United States, how oftenis someone's taxes audited?

(34:28):
Let's see if you agree ordisagree with this thing.
Overall audit rate as recentyears, less than 0.5% of all tax
returns are audited, meaningfewer than one out of 200
taxpayers are selected for anaudit.
The rate has been declining dueto the budget cuts and
resources limitations of the IRS.

(34:50):
So business owners out theregoing yeah, let go of all of
those people at the IRS.
Let it take longer, but then atthe same time, when they're
waiting for their refund to beprocessed or anything else, it
takes longer for that stuff aswell.

Speaker 2 (35:05):
And so there's two types of audits.
So what they're probably keyingon here is the actual physical
audit, where you have somebodycome in and actually audit you.
Most of your audits are reallymatching errors.
And so you get what's called aCP notice and that just stands
for computer process.
So just like we're allinstituting AI and everything
else behind our businesses totry to make us better, so the

(35:26):
government's getting there, butat a much slower pace, but at a
high level they run everythingthrough a computer.
And so if you get a and forrealtors specifically like you
get a 1099 that says you made$100,000 in income, you report
$98,000 in income and maybe yourbroker took some of that so you
didn't get it.
But then there's a broker feethat you need to report and
gross up your income to that$100,000.

(35:46):
You need to report the $100,000because if you don't report
that $100,000, it's just goingto be a simple computer and
you'll get a letter from the IRSthat says hey, guess what?
You've been randomly selectedNot really the computer randomly
selected, you Right, you know.
And because you didn't match,and so you always want to make
sure you're matching anything,any document you get.
That you're.
You know W-2s are easy, youknow you've got one wages.
Put that in.

Speaker 1 (36:06):
Sure.

Speaker 2 (36:07):
So on and so forth, but really it's the 1099s,
because you may may not matchbecause some, you know,
sometimes a broker gives you thewrong amount or they're taking
fees out or, like a lot ofclients who use Stripe, stripe
takes their fees out and youonly get the net amount to your
account, right, but at the endof the year Stripe's going to
send you, you know, about three,three and a half percent.

(36:27):
Whatever they're charging right, they're going to send you for
the total gross amount as your1099.
But if in your accountingsystem you only recorded the net
amount, because that's whatcame into your bank account,
then you're going to get amatching notice.
That makes sense, because youget the 1099K, which is for all
your credit card transactions,right, yeah, and so that's kind
of a big red flag and that it'seasy to fix right, and your tax
situation is not going to change, because we add income but then

(36:49):
we add expense, so it nets outto zero.
Sure, but as far as making sureyou're doing what's right and
not going to trigger theircomputer, not going to trigger
their computer, that's reallywhat we're trying to do.

Speaker 1 (36:57):
In addition to the uh uh loss time that you have from
receiving that notice and goingoh shit, oh shit, oh shit.

Speaker 2 (37:09):
Um, open the envelope and everybody freaks out, but
half the time, like especially,I have a business is like hey,
we updated your address, or it'slike something.
Or like, hey, if you haveemployees they send out, hey,
your you know deposit scheduleis this, don't ignore it.
That's right.
Open it up and hopefully it'snothing.
I mean it could be more, butRight.

Speaker 1 (37:24):
We got another one I haven't let go.
It's okay, don't just take itand throw it in the shredder and
be like I never got it.
I don't know what happened toit.
Yeah, no, oh, they know, yougot it.

Speaker 2 (37:31):
Yeah, because they know you got it, and then you
can't ignore them anymore.
That is correct and, as from aCPA standpoint, we can help you
a lot more earlier on when youget the letters, versus when
they say, hey, we're going tolevy your assets because we're
kind of, you know, okay, we'regoing to take them to tax court.

Speaker 1 (37:47):
We've done all we can at this point.

Speaker 2 (37:48):
Probably not going to take them to the tax court
because that's you know, throughthis and take care of it, and
communicating actively with theIRS is key.
If you ever get a notice, youcan call them, if you can get
through, because they'llprobably have to wait.
Yeah, half the time you callfor an hour and then they just
hang up on you.
Sorry, we're too busy.

Speaker 1 (38:06):
You know nothing's more frustrating right, we've
all been there, absolutely.

Speaker 2 (38:10):
And so it's just like it's so frustrating.
But at the end of the day, likeif you can call them, they can
typically put a 30 day stay oneverything and they give you 30
days, like if you don't can'tget everything together.
But the sooner you can be inactive communication with the
IRS, the better.

Speaker 1 (38:25):
Yeah, and and you know it's what's funny is you
mentioning that is the samephilosophy, same concept with
real estate?
When it comes to a singletransaction, Get in
communication with the partiesthat are associated with that
transaction as soon as possibleso that everybody knows.
Everybody assumes that, oh myGod, they're going to be upset

(38:47):
at me, Maybe, but at least theynow have the time to do
something about it and to workwith you and iron out whatever
it is that's going on, versuskeeping it close to your chest
and thinking things are going tochange because it's not.

Speaker 2 (38:59):
Yeah, half of it is just setting clear expectations
with both parties, right?

Speaker 1 (39:02):
Right, that's exactly correct.
So, going over some of thesenext questions here we've talked
about thus far benefits from abuyer's perspective, a
homeowner's perspective, bothprimary residents in addition to
investors out there.
Now obviously there's way morenuance to all of this.

(39:25):
There's no way to go down allof these rabbit holes today.
We want to kind of keep itsurface level, so it kind of
piques the listener's interest.
Maybe they give Brad a callhere.
But the idea of this next pieceis for realtors specifically.
It has tax strategies forrealtors.

(39:47):
What are tax strategies shouldrealtors keep in mind,
especially those who areself-employed running their own
real estate business?
And I think you mentioned someof those already.
But if you don't mindreiterating, like, specifically,
what would you recommend for arealtor?
Um, because I know thelisteners we've got first year,

(40:07):
second year, all the way toexperts that join us on this
show, uh, listening in.

Speaker 2 (40:13):
I think the key phrase there is.
You said as a business, treatit as a business.
Love that, and so do all thestuff.
So if you've ever been incorporate America, they have all
these rules and regulations.
The reason they do that ninetimes out of 10 is for tax
compliance purposes, likesubmitting your expense reports
and doing all this seems like apain, but the reason they have
to do it is because the tax lawrequires them to do it.

(40:34):
So even if you're just a smallmom and pop shop or just a
single realtor out there, youstill fall under the same tax
law as corporate America.
I mean, it's a little differentnuance between all of it, but
at the same level you have tohave certain things in place,
right?
So we talked about recordkeeping already.
It's definitely keeping cleanrecords.
Having a separate business bankaccount makes it easier.
Keeping track of mileage, likewe said for realtors, is one of

(41:04):
your biggest deductions.

Speaker 1 (41:04):
So actually get a mileage log, because if you get
audited they're going to throwit out and then now you just
lost a $40,000 deduction.
Now question for you, because Ido quite a few loans for
realtors out there and a lot arehaving to go the bank statement
route or non-traditional routebecause they don't claim all
their income year after yearafter year, and it's not
necessarily claim all theirincome but their expenses either
outweigh what they gained orget very close.

(41:28):
So they're not essentiallypaying taxes, which in many
cases, like for me, part of myincome is W-2, so it gets taken
right away With them.
They've got to tuck away somemoney, hopefully at least 30%
every year for the taxes thatare going to be coming due.

Speaker 2 (41:46):
It's 30%.
It's a great rule of thumb asfar as it, but a lot of them,
especially first-year agents,they come in and see us and I'm
like, well, you owe $27,000.
They're like I owe what?
Yeah?
And it it's like remember, whenyou're a w-2 employee and they
take out federal income tax,have you paid any taxes in this
year?
They're like no.
I'm like, okay.
So there's this thing calledself-employment tax, right, so

(42:07):
that's 15.3 percent.
Um is your self-employment.
So you, not only when you'reself-employed, when you're an
employee, you only have half ofyour social security, medicare,
right, but as it, when you'reyour own boss, you have the full
brunt of both the employer andemployee portion, which totals
up to 15.3%.
So whatever your profit is atthe end of the year, you're
already paying 15% plus whateveryour tax rate is.

Speaker 1 (42:27):
In the bracket that you fall within In your tax
bracket right.

Speaker 2 (42:30):
And so kind of an all-in a good rule of thumb is
30%, and if you end up withextra money in that account at
the end of the year, great.
If not, you know you've got topony some up.
That's right.
But definitely, and don't getinto um where you have 15
different accounts and you knowlike I have my tax account and
then I have my payroll accountand then I have my vendor
account, that's right.

(42:50):
Uh, it's really.
You know, if you can have asavings, business savings and a
business checking account, itmakes it your life a lot simpler
, because when you start doingyou, you know it's escaping my
mind.

Speaker 1 (43:01):
I forgot what it's called, but there's the whole
philosophy of having all thedifferent accounts and every you
know, I, I see it more oftenfrom people that aren't business
owners and it's like you've gotfive accounts and you call this
one, you're this account,you're that account, you're this
account, but every month you'repulling from this account and
that account and this account tomove it to the.

(43:22):
You're making your life a lotmore complicated than it needs
to be.

Speaker 2 (43:27):
Kiss method Keep it simple.

Speaker 1 (43:28):
Keep it, there you go .
Kiss method.
That's exactly.
I do remember that it's been awhile since I've heard that.

Speaker 2 (43:33):
Yeah.

Speaker 1 (43:35):
I'm like, okay, that's right.
Where, yeah, I'm like, okay,that's right, where did that
originate from?
You know, I don't know, it damnsure wasn't taught in schools.

Speaker 2 (43:42):
It was yeah, and it's either you know stupid or
shithead at the end of thatright.

Speaker 1 (43:45):
Yeah, that's right.

Speaker 2 (43:49):
And depending on who you're talking to you.

Speaker 1 (43:50):
know that's right.
Keep it simple, stupid shithead.

Speaker 2 (43:51):
I like that.

Speaker 1 (43:52):
I'm adding that from now on, keep it simple, shith,
ed.
You know what I mean.
Now the question comes intoplay when the IRS is seeing this
self-employed realtor continueto take losses year after year.
Is there a limitation?
When it comes to the eyes ofthe IRS, that goes hey, dude,

(44:15):
it's been four years.
At what point are you going toturn a profit so that we can
make some money from what you'redoing, if that makes sense?

Speaker 2 (44:23):
It makes sense there's a three-year rule for
hobby losses.

Speaker 1 (44:25):
Okay.

Speaker 2 (44:26):
And hobby loss is a higher area of audit than
anything, and so you want to beincluded in that lucky you know
0.01% of taxpayers.
Sure, have a business that isnot reducing its loss, um, or
going ahead and having a profit,right if you have three years
of losses that, like I said, thecomputer is reviewing
everything, right?
Oh yeah, and so when you justflag, boom just flag, then

(44:48):
you'll get the letter that sayshey, you would randomly selected
, right?

Speaker 1 (44:51):
it's not random at all.

Speaker 2 (44:52):
It's not random at all you do this to yourself
that's right and then like, ifyou're trying to get a mortgage
right, if you, if you showlosses I mean so there's ways to
show losses and not pay tax andthat's typically going to be
through depreciation Then on themortgage side you'll add it
back.

Speaker 1 (45:04):
That's exactly right.

Speaker 2 (45:05):
And so if you're going to go buy a new vehicle
you brought it up earlierpurchasing a new vehicle every
year, I mean from a taxstandpoint great, from a
personal finance side not great.
Yeah, you spend $100,000 to gobuy the new, latest and greatest
F-150 or whatever right, that'sright.

Speaker 1 (45:19):
Isn't it sad that they're that much?
It is what the heck did theyadd to them.
You're right.

Speaker 2 (45:25):
That's why I'm going backwards.
I'm buying a 1948 F-1.
That's my next drive.
Boom, beautiful stepside, Ilove it.
Okay.
But yeah, I mean, there's waysto not pay tax but still do
everything.

(45:45):
And when you have your ownbusiness, there's the gray area
of your personal versusnon-personal expenses.
There's ways to tie backbecause, like your realtor, your
cell phone home officededuction is a great one that
most agents can take, and sothen you've got to prorate a
portion of all your utilitiesand repairs and maintenance and
property taxes and mortgageinterest on your business to
offset that as well.
Right, so you get to capture.
You know, if you didn't haveyour own business, which are
personal expenses, you don't getany of the tax deduction for.

(46:05):
That's right when you have yourown business, you do get to
start taking some of those.

Speaker 1 (46:08):
That makes perfect sense and also makes sense as to
why we see a lot ofnon-self-employed borrowers that
have an Etsy store.

Speaker 2 (46:18):
That is losing money, I think everyone should have a
side hustle, or something rightso because you know I can write
off my cell phone now and now,you know.
Or a home office.
So home office, you know, sayyou have a thousand square foot
home and a hundred square footoffice.
You can get 10% right Of allyour home expenses now that
basically, if you didn't have abusiness, it's just gone right.

Speaker 1 (46:38):
Right.
And that leads to anotherquestion that hopefully people
can get some value out of andthat is the idea of everyone
should have a side hustle.
What would constitute beingable to claim that on the taxes,
let's say as a Schedule C,utilizing their social security

(46:59):
number as the ITIN number or theEIN number of the business,
without a DBA or anything likethat, before it starts to cause
any ripple effect or red flags?
Random audits.

Speaker 2 (47:12):
Yeah, it sounds like a broken record, but record
keeping right, yeah, I meanbecause it really gets down to
having good records.
And so if you're going to havea business and a side hustle, I
mean you need to be doing it fora profit purpose is going to be
one of the first things IRSwill ask, right, and so are you
in this for making a profit?
And if you turn up and say no,then you just shot yourself in
the foot.
Yeah, no, I'm just like doingit, keeping track.
Yeah, I'm doing it so I cansave.

(47:34):
Not the best answer, right,that's right and so anytime you
go into a business right, it'stypically to make money yeah, we
hope not to lose money, unlessyou want to go into farm and
ranch you know, touche ranch.

Speaker 1 (47:45):
No rancher ever makes money never it's so funny, but
yet they continue to stay inbusiness for years and then pass
it down generationally weirdwell, that's how they can.

Speaker 2 (47:55):
Right, because they haven't had to buy the land.
You had to go buy a thousandacres.
Now, right, good luck, goodluck.
Yeah, that's right.
Um, okay, right, because theydidn't have to buy the land.
You had to go buy 1,000 acres.
Now, right, good luck, goodluck yeah, that's right.

Speaker 1 (48:00):
Okay, so we talked about the real estate side of
things we talked about forhomebuyers and real estate
investors and I think I kind ofknow the answer to that.

(48:21):
But if you don't mind sheddinglight on it the idea of rising
interest rates and how that canimpact what both homeowners as
primary and businessentrepreneurs investing on their
side of the tracks I only seeit as a benefit.

Speaker 2 (48:40):
I mean you're paying more but you get a larger
deduction from a tax standpoint.
It's more of a personal financeand cash flow issue from an
investor or from the personalside, because you get into the
debt to income ratios and allthat kind of stuff to qualify
for the mortgage.
Yeah, you want to be a loanofficer.

Speaker 1 (48:58):
That's all on that one.
Let's see here it sayscontroversial topics short-term
rental properties Ooh, that cameup and we talked about it
already.
How do short-term rentalproperties, like Airbnbs, differ
from long-term rentals in termsof tax implications?
We talked about that earlier.

Speaker 2 (49:19):
It's the active versus passive income right, and
so short-term rentals areconsidered active income, and so
a common mistake we see ontaxes is they're still reporting
on your Schedule E, which isthe typical form that you report
it all on, but it should go ona Schedule C.

Speaker 1 (49:32):
Makes perfect sense.
So that is all the questionsthat I have here.
Now I'd like to open it up tosome other things that I have on
my brain that I think folkswould want to know, especially
investors out there, because Itell you this is probably one of
the most it's either askedprior to or they're telling me

(49:59):
that this is what they didbecause of a CPA that told them
to do this.
And that is the concept of Ipurchased an investment property
with finance from a loan and myCPA is telling me to put that
into an LLC for liabilityprotection.
My response to that and you cantell me if I'm right or wrong,

(50:21):
doesn't bother me.
I want to learn today, as thelender on that property, if they
are putting that into an LLC,that is now essentially
triggering a due on right nowclause, essentially because you
just removed it from your ownpersonal which that's who

(50:41):
qualified for this property overto an LLC.
That the idea is if, if there'sany liability, I get sued, the
LLC gets sued, but yet you'vegot this personal loan on it
that is tied back to you.
So my response is always thegood idea is to leave it in your

(51:03):
personal name.
Make sure you have insurance,obviously, but until that
property is paid in full, thereis no reason to move it over to
an LLC.
Am I wrong, right indifferentto move it over to an LLC?
Am I wrong, right indifferentkind of wrong, you tell me?

Speaker 2 (51:15):
Both, I mean.
The problem is, when people saythey put in their LLC, most of
them never actually go retitleit at the county.

Speaker 1 (51:20):
Oh, good point.

Speaker 2 (51:22):
Good point, and so it's still in their individual
name, even if they're reportingit under their LLC.

Speaker 1 (51:26):
Yep, I've seen that too.

Speaker 2 (51:27):
Right.
And so if and if you're goingto start purchasing stuff in
your LLC, I would say go, go,get a business loan.
That's right, cause you knowthe paperwork is like this big
right On a business loan you'rein and out in like two minutes.
Even it can be a $10 millionproperty and it's like 10 pages.
You're like, oh, this isawesome, versus, you go buy a
hundred thousand dollarresidential property.
Well, if you want, if you wonderif you can find them anymore at
that price, but that's true,but you know, then it's like the

(51:50):
pile of paperwork, right, it'slike this and you're like how
many times have to sign my name?

Speaker 1 (51:54):
So true Um and and personal experience on that.
When Kristen and I uh, wereflipping the properties, we were
buying the house's cash, soessentially, or getting hard
money loans on them, we had toput the properties in the name
of the LLC, which at the timemade sense, and it felt like I
had confirmation of everythingthat I had told borrowers prior

(52:17):
to, because it's like, OK, I'vegot to put this in an LLC that
makes perfect sense, feel likethey're doing it the right way,
or feel like they are have moreestablished and causing more
hurdles down the road for them,either from the lender, the CPA

(52:38):
side, or is it many cases in anexperience of the CPA that's
advising them or them justtrying to make a couple bucks
off of claiming more work on thetaxes filing for the DBA, et
cetera.
Whatever the case, the LLC andthere's a charge to register
your DBA and all that jazz.

(52:59):
What?

Speaker 2 (52:59):
are your thoughts?

Speaker 1 (53:00):
on that.

Speaker 2 (53:01):
I think as you get bigger and have more properties,
maybe you set up some kind ofLLC, but if you're going to have
one or two properties, that maybe all you ever get.
It goes back to the KISS method.
Just keep it simple.
And if you're worried aboutliability protection, go get an
umbrella policy.
Right, you can go get a couplemillion dollar umbrella policy.
So I mean you should have thehomeowner's insurance and the
landlord insurance and all theother insurances in place and if

(53:22):
that gets kind of capped out,you know you have an umbrella
policy to cover it.
It's going to be a lot easier.
Keep it simple, cause half thetime when all these people set
up their LLCs, if they wereactually get sued, they're not
doing it right and they'recommingling assets and the.
Basically the attorney and thejudge is going to say, hey,
you're not operating a businesslike manner LLC is defunct.
And then all these years you'vebeen having them doing it right.

(53:42):
Or, like you said, the due onsale clause, it's in all, that's
all there.
I mean that I've never seen ithappen, but same here.
But the bank could call it andthere's no reason to open it
unless you're sitting on acouple million dollars that, if
you got a, you know 10properties that you could just
pay cash for.
That's right, right.
If the bank calls your note,your most people are probably
like oh shit what am I going todo?

Speaker 1 (54:03):
Let me go retitle this.
Yeah, you're exactly correct.
I mean the idea of saving orprotecting yourself.
It seems a bit redundant fromwhat they're trying to
accomplish because, you're right, they are commingling what
they're doing, whether theiractivity, their funds, that

(54:24):
concept and overcomplicatingsomething that doesn't need to
be that complicated, and if yougo to any of the guru
conferences right, they alwayshave the attorneys in the back.

Speaker 2 (54:31):
Hey, for a few thousand dollars we'll set up
your holding LLC, your operatingLLC, your real estate LLC.
So then we can set up a seriesLLC for you.
By the way, it's five grand.
They're there to sell you thefive grand that's all they want.
You don't need to have all thesedifferent LLC.
Hey, you know, my tenant keepscalling me at five o'clock on
Friday night when I'm supposedto be out with the family.
I don't want to do this anymore, that's right.

(54:52):
Or, you know, go get a propertymanager to do it for you.
But at the end of the day youmay be like I just don't want to
do real estate anymore.
Don't go set up all thoseheadaches and compliance on the
back end.

Speaker 1 (55:01):
That's right Until you start getting because of
this.
But prior to and I was not inthe lending world in this time
frame, but 2008, 2009 crisis,the fraudulent activity that was

(55:21):
going on.
Everybody and their mother andtheir dog apparently were
getting mortgages.
People were putting them intheir LLCs and when the finance
company or the lien holder orthe servicer of that loan goes
to foreclose on something that'snot being paid, it's a shell of
a shell.
That was, I hope, why they didit or changed that, or did it
ever even change from that?

(55:43):
Because I know on our side weused to accept that type of
financing in an LLC.
Now you have to go hard moneyif you want it that way and keep
a loan on it.

Speaker 2 (55:53):
And you can't, or you just have to go to the banks
right and you get.
And so your your bigger banks,not your.
Typically, the best way to getloans business loans, is through
small local banks.
That's right.
Not your Wells Fargo's and Bankof America's, Absolutely,
Because if you don't fit insidetheir little boxes, it says you

(56:14):
have this, this and this andthis, right?

Speaker 1 (56:15):
Oh, this is outside of that box.
Then they're like we're notgonna give you money.
That's right, and in many casesit is up to the computer making
the decision, Whereas whatyou're advising is go to a bank
that has a board, somebody thatmeets every week or so, that
makes some decisions on peopleand their vision and what
they're trying to accomplish andtheir business plan, versus
what was entered into a computerscreen and, like you said, the
red flags go at.
We can't give them that loan.

Speaker 2 (56:36):
Well, it's even on individual mortgages, right?
Go talk to you, Right Cause ifyou try to talk to those on the
individual mortgages, if yourcredit score is not a seven 20
and you're making 200 grand ayear and you're like, oh no,
we're going to get you amortgage versus you know, y'all
can find ways to help people getqualified and guide them
through the process, Right.

Speaker 1 (56:52):
That's exactly right, and I think that is the most
important thing about thislittle transition here is is the
guidance piece is no matter whoyou're working with.
If you feel like they are justtaking orders, chances are they
are, and you need to be workingwith somebody that can guide you
, that can advise you, that cangive you their expertise,

(57:16):
because, essentially, is thatnot what you're paying for?

Speaker 2 (57:19):
Exactly.

Speaker 1 (57:20):
You know.
But yeah, let's see here, jc,how are we doing on time?
1.11.
1.11.
Okay, minus 15 for my littleokay, we're about an hour Three
minutes.
Yeah, minus 15 for my little.
Okay, we're about an hour Threeminutes.
Yeah, mas o menos.
I'd say we're right around.
I like it, brad.
This has been an enlighteningconversation.
There's a lot of stuff that Ilearned within it and I'm sure

(57:43):
the listeners out there learnplenty.
Most would go wait a minute.
You had a CPA on there.
That's got to be a lame episode, but I guarantee you people are
going to tune into this,because most of the listeners
are either looking for a CPA,dealing with a CPA, and most, if
not all, don't know what thehell they're doing anyway,

(58:05):
because they're there to sellreal estate or they're there to
run their business.
They don't dream about taxstuff like you do.

Speaker 2 (58:17):
Yeah right, we all dream, but some are nightmares.

Speaker 1 (58:21):
Good point, good point.

Speaker 2 (58:22):
That being the case, is there anything that you'd
like to enlighten our viewers,listeners, about regarding I'll
try to give you the 90-secondplaybook on how to save the most
money on taxes as a real estateinvestor.
So you want to qualify forwhat's called a rep status, and
so that's real estateprofessional election on your
tax return.
And you have to document 750hours of real estate and do that

(58:44):
greater than anything.
So you can't be like a jobsomewhere else, right?
So as long as you're doing inreal estate full time, which as
a like a realtor, is a great wayto do it, right?
So so hopefully, you're a verysuccessful real estate agent.
You're making a couple hundredgrand a year.
Take the profits now go buy somekind of commercial or
residential real estate and whenyou buy that, go do the cost
segregation study on it, whichyou know.

(59:06):
You may put 20% down and guesswhat?
We can probably get you a 30%deduction year one.
So all your money you put inyou can basically get as a
deduction year one on your taxes.
And now you get that so thatreduces your tax.
Basically you can offset, sinceyou have a rep status, you can
offset your passive income andyour active income with your
passive losses.
Since we accelerated yourdepreciation, you can still make

(59:26):
a couple hundred grand qualifyfor those mortgages as a realtor
.
And now you have thatproperties and you're building
your wealth through properties.
And then, on top of that, afteryou've done your cost
segregation study, hopefully, ifyou've got kids running around
the home, get them employed inthe business.

(59:47):
And you want to make sure you'reemploying your kids through
some kind of Schedule C, even ifit's a part of your real estate
business, right, you want to bea sole proprietor, because if
you can pay them w-2 wages andas long as they make under the
standard deduction, which willsay roughly thirteen thousand
dollars, now you can.
Once they have earned income,you're not paying social
security, medicare, tax ifthey're inside of your sole
proprietorship business becausethey were considered your
dependent, and as long asthey're under 18, and then from

(01:00:09):
there you can contribute to aRoth IRA.
So now you can start buildingyour kids up with Roth IRAs and
that'll be tax-free for the restof their life.
And it's better than like acollege savings plan for 529,
because your kid doesn't want togo to college, right, they're
just not ready to do it, like weapparently weren't, absolutely
absolutely.
And so with the 529 plan you'restuck in college, right, but if

(01:00:30):
you have a Roth plan they canpull the money out to go buy
their first home.

Speaker 1 (01:00:33):
Yes.

Speaker 2 (01:00:33):
There's all these.
You can always pull principaldown.
You know, say they want tostart a business but you've got
a business deduction for itthroughout the years, and now
your kids, right, have moneythat there's.
It's going to be tax-freeforever, wow.
And so that's kind of the downand dirty of you know all.
How can we really do?
And there's a lot more you cando into like and everybody you
know has heard, seen a TikTokvideo.
Hey, I can you know, rent out myhouse, and I can you know, to

(01:00:58):
my LLC and then I can shift overthe income which you can and
all of these kinds of stuffwe're talking about.
There's right ways to do it andproper documentation has to be
done.
And what they're talking aboutis the Augusta strategy.
Right, you can rent out yourpersonal residence to your
business for 14 days or less andthen that's a business
deduction for you, so it lowersyour taxes, and then you pick up
the income on your individualtax return, but then you cite
the code section on yourSchedule E and it basically
wipes it out as long as you doless than 14 days a year.

(01:01:20):
So it came from the MastersGolf Tournament, right?

Speaker 1 (01:01:22):
Augusta Georgia.

Speaker 2 (01:01:25):
So they basically lobbied.
So it gets back to the tax lawsa set of rules on how not to
pay tax.
That's in the tax law.
Right, there's ways to do allthis, but really gets down to
documentation and record keeping.
Wow.

Speaker 1 (01:01:35):
If you didn't get anything out of the entire
episode discussion, how aboutthat last three minutes?
Wow, damn, that was good.
I'm going to go Exactly,exactly.
So I'm impressed and gratefulto be working with you
personally.
This last thing came uprecently that I want to close

(01:01:57):
out with, just to make sure thateverybody has right information
, and it is initials, acronymBIO, and it is this new
requirement that business ownersneed to register in order to
show their ownership of thebusiness if it's more than 25%.
Can you enlighten me on some ofthat?
It came up in a group chat witha bunch of realtors, all of us

(01:02:21):
business owners and we were likewell, what the hell is this?
I'll ask my CPA.

Speaker 2 (01:02:27):
Yeah, so you've got the FinCEN, which is the
Financial Crimes Division of theUS Government, beneficial Owner
Information Report thateverybody's supposed to file,
but they had a Tuesday.
It was either Tuesday orWednesday.
Okay, the National Federationof Independent Businesses
actually won a court case inTexas that said, hey, this is

(01:02:47):
unlawful, against the FourthAmendment.
All the businesses should nothave to do it.
But it's really weird.
So why this court case isongoing?
Technically, the deadline of1231 for all these businesses to
register is still in effect,but then, at the same time, the
court said you don't have to doit.
So basically, the deadline'sthere, but you don't have to do
it.
So it's really weird.
Yeah, and it's where we're at onit.

(01:03:08):
And so what we're recommendingis basically to have all your
information ready to file.
Sure, but technically, sinceit's pending litigation and the
oncoming administration istypically more business friendly
, they're probably not going topursue it, right?
But at the end of the day, itwas basically whenever you
register your business at thestate level, you say, hey, I'm
Mark Jones, this is who I am,this is my address and that kind

(01:03:29):
of stuff.
Right, they wanted to startdoing on the federal side.
Oh, and so they're trying andit's for anti-money laundering
and all this kind of stuff,because all the you know
criminals are putting.
They're gotten a lot smarterthroughout the years right and
so they know.
But if your business was large,you didn't have to do it.
So, like they're like, hey,you're picking on small
businesses and so that's whythat does actually make sense as
to why?

Speaker 1 (01:03:49):
because the first thing that makes me think of is
monitoring people, whichobviously we want to do that
safely, so that money launderingisn't going on, et cetera.
Invasion of privacy I don'treally see it as an invasion at
all, to be honest.

Speaker 2 (01:04:06):
Public knowledge.

Speaker 1 (01:04:07):
But yeah, I'm submitting my taxes anyway.
You know what the hell's goingon.

Speaker 2 (01:04:11):
Well, I guess they don't really know who the owners
are right, because sometimesyou get layers and layers of
owners and so they're trying tofigure out who the actual, who
receives this money at the endof the day.
Who's the beneficial owner,right?
That's where the name comesfrom.
Yeah, no-transcript.

(01:04:36):
The state government cannotprovide the information to the
federal government, and sothat's why they have this whole
new thing.
But yeah, the fees areoutrageous, you know, per day if
you don't do.

Speaker 1 (01:04:45):
I need to do this ASAP, and it's one of those
things that I wouldn't minddoing, regardless of this court
case being overturned or not.
I just don't want to get hitwith those penalties At the end
of the day.
I think it was what $150 a day.

Speaker 2 (01:05:01):
Right, what, of course?
Then you get into how are theygoing to enforce this?

Speaker 1 (01:05:08):
Yeah, levies.

Speaker 2 (01:05:10):
One of those things and so so, yeah, you can go
ahead and still file it likeit's still out there.
It's relatively easy.
You basically say, hey, this is, you know, my llc, I'm the
owner, and they need some kindof identifying document, just
your driver's license or yourpassport or something like that.
The problem is is, if you move,your driver's license expires,
your passport expires, whateveridentifying document you did,
you have 30 days to notify themand refile it and so that's or

(01:05:33):
it starts or it starts thepenalties.
You know, I'm sure it'll be.
I don't like if the court casegets overturned, then we'd have
all this.
We'll see what happens.
It'll be interesting.
We're keeping a watch on it,yeah, but uh.
So I mean it's there but notthere, as I guess the that makes
sense, obviously.
But you can file it and if youhave multiple businesses and it
does take effect, they havewhat's called a FinCEN ID.

Speaker 1 (01:05:54):
Okay.

Speaker 2 (01:05:55):
And so, instead of you've got 10 different
companies right, you would haveto go in each time your driver's
license expired and update each10 companies Right the way
around, that is to go get what'scalled a FinCEN ID and then you
only have to update once andyou know, waterfalls down to all
your other businesses.
Gotcha.
And if you do want to file.
You definitely still can.
But if you have more than onebusiness, make sure you fill out
a FinCEN ID and it's reallyeasy.

(01:06:16):
Probably take everybody fiveminutes.
So I mean everybody's doing it.
From like Gusto, if they'reyour payroll provider for like
10 bucks to attorneys for like athousand dollars.
Yeah, you know, click a coupleof buttons click a couple of
buttons and so they have a PDFon their website you can
download.
Yeah, and it actually factchecks and make sure it's all
filed correctly and so like, ifyou're worried, I'm not going to
do it right, then you justsubmit the PDF, yeah, and then

(01:06:37):
it uploads it.

Speaker 1 (01:06:38):
Well, I tell you what folks listening to this I'm
going to put a link to like toget ahead of this, regardless of
which way the court case'soutcome turns.
You can go ahead and knock thatout, brad, this has been an

(01:06:59):
awesome discussion.
I'm not surprised at all.
I know who I'm working with andI'm appreciative of that.
Anything else you want to letus know before we close, before
we, uh, close this bad boy out.

Speaker 2 (01:07:12):
Nope Good to go Semper Fi.

Speaker 1 (01:07:13):
I love it, baby Brad.
Thanks again.
Um, for those of you out therelistening, I I think one of the
biggest um key factors that Ican give for you is coming from
someone that did my own taxesfor many, many years prior to
finding a Brad.
It is difficult and what Ifound is that, as smart and as

(01:07:39):
long as I researched and used AIto help me when it was around
back then, and as much as itcould Google search, you still
miss plenty of opportunities.
As it could Google search, youstill miss plenty of
opportunities, deductions andsavings that you could have had
otherwise.
Because, let's face it, I'm inthe game of lending money for
mortgage loans, not doing taxesand keeping up with regulations

(01:08:04):
and all the other things that goalong with that.
So a recommendation that I havefor you is to find yourself a
good CPA.
I'm going to make sure thatI've got Brad's contact
information in the descriptionof this.
You can also visitBernieTXCPAcom to take a look at
Dower and Associates.
Him and his team have done aphenomenal job for myself and my

(01:08:27):
wife and our businesses.
That being the case, guys, hopeyou're getting something out of
this.
Make sure to like, subscribe,share with a friend, I'm sure
this is one that you can sharewith a business owner that would
be appreciative of you doing so.
That being said, we will catchyou on the next one.