Ep 298 | Unlock 5 Expert Tax Strategies to Save Thousands and Sidestep IRS Pitfalls

You're welcome . I know it was a little bit of a wait , but I look forward to talking about our favorite topic .

We were having a corporate award ceremony , and I will go into all the backstory , but basically there was an award given to a guy who was a great company man .

He had canceled a pre-approved , prepaid vacation to Europe with his family for two weeks and said he came into work when the company needed him and isn't he such a great guy , let's give him a hand .

Here's a plaque right and so that started my entrepreneurial journey , because I was like that's not how I want to live , and over the next decade or so , I tried a whole lot of different things , but in 2007 , I started getting nasty letters from the IRS saying I owed them $1.3 million . Yeah .

So , like most people , though , when you get a nasty letter from the IRS , you just put your head in the sand and ignore it , and I did the same thing .

So I went through the whole process where first you get letters , and then you get certified mail , and then you get phone calls and then , if the number is big enough and a million dollars is big enough , they will start going after whatever they get . And at that point they started garnishing my paycheck and I couldn't afford to pay rent .

Supposedly , I got to get those checks .

So in fixing my own problems , I ended up finding the man who eventually became my mentor , who is a former Wall Street tax attorney , and he helped me fix my problems , and it took about a year , and in doing so , he showed me this whole world of Wall Street style tax advisory work that I never knew existed and his business was starting to grow .

So I had taken the last decade of entrepreneurial learnings , applied them to his business and we tripled his business over the next few years , and then , in doing so , I learned the tax game in a very kind of old school apprenticeship type of way .

So over the last 15 years now , I've worked on over 50,000 tax returns , on billions of dollars worth of client earnings and in 2020 , went off on my own with TechSherpa . Because I've always been a small business person for myself and that's who I resonate with . I understand their struggles and their issues .

So TechSherpa is really targeted towards that small business , solopreneur , independent contractor kind of level to help them apply those lessons from you know Wall Street essentially and bring them down to the solopreneur , small business level .

I sold , however , many millions of dollars worth of stock , which I did , and I made all this money and I never paid taxes . And so what happens is if you go a few years it's usually four to five years without filing taxes which I did they will file what's called an SFR , a substitute for return .

Basically , they'll take all the information they have on you from third parties and they'll construct a fake tax return with the worst assumption possible . And if , after they do that , they figure that they would have given you a refund , you will never hear from them .

But if they determine that , based on their assumptions that you would have owed them money , then you'll start getting letters and that's what ended up happening . That's one of my hobby horses where every tax season , we'll hear people say it's like oh , the IRS already knows what I owe them , why should I have to sell this form ?

Why do I have to do this and that ? Yeah , you don't actually have to . You can just wait and they will again . They'll do the worst assumption possible and if you're due a refund , you'll just lose it and that's it . So that system does exist , but it's just not very good .

It's now it's 50,000 . Okay , so mine was under 10,000 . It was like 5,000 bucks and I paid it off in three months but I had to pay a little bit of interest . I just didn't have the cash flow at the time . But no , I get it . And it sucks when you owe the IRS and they hound you and hound you and just don't let you go .

And you can't put your head in the sand on that one , because they've got the power to , like you said , garnish your wages . They can levy your bank account .

And there is some language they put into it says , hey , you've already made your assumptions , this is the correct return , that's to replace that , and so it goes through . And because at that point it's already in the hands of a revenue agent , that person has to go through everything and approve it .

But once all that's done , then , as it turned out , I did lose money . So I was correct , I didn't owe anything and I just had to prove that to them .

But so in my case , the way they split it was that the garnishment happened within three years , but it was for a tax year that was past the three-year limitation , and so they just held the money and never got that back . I probably could have pursued that more aggressively if I wanted to , but at that point it wasn't worth the hassle .

So being on top of your due dates is probably thing number one , because even if you file something and you find out later , it's always supposed to add this and that didn't include this . You can always amend later . It's a hassle but it can be done . So making sure that you are up to date on your calendar filings is critical .

If you do that , they'll pretty much leave you alone , to be honest . So if you have a big bill due because of some strange thing , but you definitely want to get into a payment plan , it's available . But yeah , if what the iris really wants is compliance .

So as long as you're in the system , you're making their filings , they're pretty happy to let you proceed as you see fit . And you know if , when it comes to large tax bills , usually that's because something was done wrong , because if you have a large tax bill , what that's saying is that you made a whole bunch of money .

And if you made a whole bunch of money , hopefully you didn't immediately blow it all . I've seen that happen a few times , but not too often . So if it's an unexpectedly large amount of money that you owe , then the thing you want to look at first is was everything recorded correct ?

Because chances are there's some kind of error there , and once you fix that , that goes away , because cashflow should be relatively sufficient to pay the tax bill on it . But then , beyond that , what most people do for taxes and this is probably 95% of tax filers you go through the year . You get your paperwork together .

If you're a small business person , a lot of times that will involve spending a very frantic weekend or so trying to go through your bank statements , trying to come up with the numbers to give to your tax guy . But at the end of all that you hand over a bunch of documents to your tax preparer .

Tax preparer puts it in the computer and they fill out the tax return . They say here you go , you owe $6,000 or you're getting refund of 3,000 or whatever the numbers are , and that's the beginning and the end of the whole process .

So a much better idea is to actually work with a tax preparer who's an actual tax advisor , who coaches you throughout the year as far as oh , this is what you have going on . We can apply strategy one , two and three and we can reduce your overall tax liability significantly . And that's really what we do .

Yeah , we'll do the filing short , we'll do your bookkeeping short . But the real where the rubber hits the road is on the advisory side , where we are looking at your situation holistically and say what strategies can we implement given your particular facts and circumstances ? Take what would have been a larger net income and crush it down as much as possible .

What would that look like from a service perspective ? Let's say you've got a small business that's on a tight budget . How does a small business pay for your services ? Yeah , on the global scale .

We figure out , okay , you're married , you're single , you have kids , you have investment property , you have business , you have whatever else you have going on , and from there we plan the route . So we figure out your starting point and then we say , okay , based on your starting point , where can we go ?

And we figure out what's the most tax efficient thing to do so that can minimize your costs as much as possible . Go ahead , no , go ahead , okay . So , once we have the route , the next step is the track , and the track is actually doing the work where we have to implement various tax strategies , and that's going to depend on what the strategies are .

Some of them , like a lot of solopreneurs , will be filing what's called Schedule C , where it's just there's no separation between them and their business . It's part of their tax returns .

That's a bad idea for a whole lot of reasons idea for a whole lot of reasons , but so we might do some entity structures Okay , you need a new LLC , we need to set it up as an S corp or a partnership , what have you ? And starting to get all those things in motion , because anything dealing with government takes time . Right , so there's paperwork to file .

We've got to wait through the process and all this kind of stuff . Other things that we can do internally is .

One of my favorite strategies is the is what we call the summit strategy sessions , and this is a huge missing piece for small business people , because most small business owners whether they're solo or they have a small team or whatever they are just operating on their bank accounts .

So they yep , they bring it up and say , hey , there's money in there , great , we can buy some ads , I can make my payroll , I can pay my contractors , whatever it is , and that's all they're looking at .

What the Summit Strategy Sessions does is it makes the business owner look at their books in a systematic way so we can see okay , last month we did this , compared to the month prior , things were up , things were down .

Whatever it was , compared to the quarter prior , compared to the year prior , what happened , and the goal there is to basically just run their businesses better . So you , as you track that over time , you're able to increase what is working and decrease what is not working .

And if you do that over and over and over again , then by a year down the road you have a much different business than you did over those previous 12 months . Our goal is to do things as tax efficiently as possible . Oh and , by the way , the strategy sessions creates a tax deduction as well at the same time .

So that's why we get a double benefit we want business to be better and better over time and paying less and less tax at the same time . That's the goal . And as far as what we charge , it's going to depend on what it is that we do .

But typically what most people end up doing is we take whatever the total fee is between the filings themselves , the advisory work and if we're doing bookkeeping or not , and we just break it up into a 12-month engagement , and usually that's easy enough for businesses to handle .

And then the last step of the process is what we call compass checks , because things change . So along the the way we'll sit down , usually quarterly , sometimes twice a year , depending on the particular needs , and we'll go over , said , okay , here was our plan . We've done x , y and z . How are things looking now ?

Because we've had cases where we had one client last year they're in online e-commerce , kind of stuff . Q1 was terrible . We did projections based on that . Q2 was fantastic . We did projections based on that . Q2 was fantastic . We did projections based on that . And then they said , okay , q2 is how it's going to be .

We're going to be making tons of money for Q3 and Q4 .

And then , along the way things happen , they got a Google account shut down so they couldn't bring in the revenue like they thought they would , and so Q3 , q4 were like middling , and so the projections we've made on that second quarter numbers ended up being wrong and we had to adjust for Q3 , q4 , and we ended up with a lower revenue and lower expenses along

the way . The only constant in life has changed . So we got to make sure that we were up to date with everything . So yeah , but as far as how our engagements works , typically we'll do that 12 month kind of thing .

Some people especially as we get into the end of the year , some people want to get that expense on the books , so they'll want to do a one-time shot . Either way is fine by us . The net result is that by the time we implement all of our strategies , we're going to save you two , three , four times the cost .

I know we don't put a lot of effort and time into it , but I'm sure there's things that we could be doing on our own on a daily basis to be better with tax planning , but better yet being more efficient with our business too .

From there , if you have good numbers like if you don't Shark Tank or whatever they'll say you don't know that numbers , it's Shark Tank command . So once you know your numbers , then you can start to figure out the things that you can do . So the common things that we do a lot with pretty much every business is we'll look at your entity structure .

So do you have an LLC ? Do you have a corporation ? How is it treated for tax purposes ? Is it a Schedule C ? Is it a partnership ? Is it an S corporation , a regular corporation , c corporation ? Most of the time you're going to want to have an S-Corp , and that's 90% of the time you're going to want that .

You might have other things too , but S-Corp is probably going to be your main vehicle , because the difference there is that S-Corporation profits do not carry self-employment tax , which is the Social Security and Medicare , and that is a 15.3% difference between partnerships , schedule Cs and then S-Corps .

C-corps is a different thing because there's dividend rates and things .

So most of the time you're going to want an S-Corp and if you're an entrepreneur type where you have lots of ideas and you're pursuing new business opportunities , a lot of times you'll find yourself in a joint venture and instead of owning that joint venture directly , your LLC , s-corp should be owning your interest in that joint venture , and there's a couple

different reasons for that , but basically it allows you to apply strategies before they come and hit you personally . That's probably the most important thing , but there are lots of benefits for doing it that way . But there are lots of benefits for doing it that way .

Another thing is that at the base , we implement a suite of strategies for pretty much all clients and that's going to be the summit strategy sessions , where you have administrative meetings with the management team , which usually that's just going to be yourself , and then having reimbursement plans .

So , as a small business , you have a lot of flexibility as far as the reimbursement plans . So , as a small business , you have a lot of flexibility as far as the reimbursement to employees going to be mostly you , maybe some , maybe a couple of team members as far as the business use of their stuff .

So you know , the home office deductions are a big red flag when it comes to schedule Cs . But if you take those same expenses and put them through an Nscorp , through a reimbursement plan , that audit risk disappears because it's just a different form , different way of capturing those same expenses .

You want to make sure that you have those in place so that you're able to maximize the expense of all the things that you do , because every entrepreneur out there is talking about business all the time , thinking about business all the time and probably working most of the time .

But so by taking those legitimate deductions that you're entitled to and reimbursing them from the company , you are able to capture them , pay less tax and do it in a way that actually reduces your audit risk . So that would be the three kind of basics that we want everybody to .

But it just makes it so much cleaner . So it's arm's length away , but also at the same time as we still have control , because we're usually in with a joint developer or an investor . So I love those . They work very well .

You're going to have wiring and cabinetry and furniture and you're going to have landscaping into . You're going to have wiring and cabinetry and furniture and you're going to have landscaping , you're going to have hardscaping and all these other things .

And the idea of doing this is to capture more depreciation in the early years , as both delayed , and so you're able to get more deductions up front rather than later on , which works great if you have the tax liability to meet it . So so I have seen many cases where people come to me .

They're all excited and they say , hey , I've got this cost segregation report . Isn't it going to save me a ton of monies ? No , because you need to have tax liability in order for those deductions to be useful . You still have them , but it didn't get you any extra money because you were a little bit quick on the trigger there to get that kind of work done .

But if it does apply to you , it's an incredibly powerful strategy to . If you're doing commercial development on multifamilies and things like that could be hundreds of thousands of dollars worth of extra depreciation for you . That can be really powerful .

It's not as fully fleshed out as doing an actual tax return , but it'll give you an idea of what it is that you're looking at . It's you know , especially now we're coming into the end of the year , you want to avoid those surprises .

You want to know what's happening so that you know at the very least you can plan or make adjustments or do whatever it is that applies to you and you'll be able to make that resource available for your listeners so that they'll be able to keep themselves from being surprised .

I love what you're doing because you're taking taxes and actually making it work for us entrepreneurs and small business owners , but also educating us , because I don't think there's a lot of education going around on taxes right now .