This is a bonus episode of the Rental Income podcast, and no damn, I've got a couple of tax questions and I thought this might be a good opportunity to do a bonus episode today and get the answers to my questions and share it with you. So there's three things that I want to try to figure out today. The first thing is I've had a few people recently that tell me that every year they just automatically file for an extension because it lowers
their chances of getting audited. And I want to find out it's that true. It is avoiding an audit just as simple as filing for an extension, So we'll get to the bottom of that. The second thing is we've had a few people on the podcast recently that are making large amounts of money and they're legally not paying any taxes, and I want to get a better understanding
of exactly how that works. So we'll talk about that today. And then the third thing is a lot of times what I'm doing my taxes, I gather all my documents and I meet with my CPA and we just do the taxes. But I want to see what the advantages are to actually having a tax plan to actually sitting down with the CPA and coming up with a plan to pay less taxes in the future. So what we're gonna do is take a real quick break to thank our sponsors, will come right back and we'll
talk to a cease from the Investor FRIENDLYCPA dot com. It's a lot of work to find a really good rental property, and when you actually find that property, you want to make sure you're working with a lender that can get that loan closed. The lender that I recommend is jay Lee Ridge from Ridge Lending Group. She's a nationwide lender and her specialty is helping investors finance rental properties. She has a ton of loan programs and she can find something customized
to you for your situation. If you want to find out more or you're ready to get started today, just go to Ridge Lending Group dot com. That's r I Dge Lending Group dot com. N MLS four two zero five six Rebel Income Podcast. Let's start off talking about the audits. So this is I think kind of interesting. But in the last week, I've had two people tell me that every year they just automatically file for an extension because
they've been told that that lowers their chance of getting audited? Is that true? Just filing earlier than I don't think it impacts that much. It just if you file they say January, and let's say out of five million det return only twenty million has been filed, you're in a very small bucket and your chance to be getting picked it's very high, right than you win into October and when all the dextern has been filed and you have five hundred million
deacton they have to pick and it's a lot lower. Okay, So bottom line, so this is true that you have a lesser chance of getting audited if you file an extension. That's what the revenue agent told me. And I'm again addis is as mysterious as they can get. So that's what they told me, and I've been following that it has helped, honestly, because none of my clients have been audited, and hopefully that in a stage. But okay, I would agree with you, Okay, all right, awesome,
all right, that's a great little trick. Now, is there anything else that you can think of or tell us about that we can do to prevent an audit? Like I know that if you took the home office deduction at one point that was an audited flag, but then now it's not. So is there anything else that if you do, there's a good chance you're going to get audited. I always say it, don't fear off and don't try to do wrong stuff and fraud, tax invasion and all the frauds.
You will get screwed because at some point you might get audited again. The chances are low, but you lose your sleep and you never can sleep. There are things like home office and taking auto mileases, all those things cannot just trigger audit like that. I just and this is what they told me. Because all these are random, they will they will flag some returns for higher chances of audited because it has millions or dollars losses for the last three
years and you have not been paying any taxes. Then yeah, I think they get in a different pool to get audited. So you're naturally higher high, highly like to get audited. That's given. But normally, just in simple returns and rental properties where you're taking normal deductions, taking home office, that would not be a reason for all. Okay, nothing to be afraid of. Just yeah, Okay, okay, all right, Now, let
me ask you. We've had a few people on the podcast recently that have said that they're making large amounts of money and they're legally not paying any taxes. And one case that that really comes to mind is we had a guy on the podcast that's making a million dollars a year in rental income. What do you and I realize you haven't seen his returns. I realize you're you're not his CPA, But what do you think some of the things that what
do you think he's doing to avoid a million dollars in taxes? Yeah? Very normal? Uh and this is not the one. I mean, I have clients who have more than that and video taxes, um. And it's very simple. And this is what we have been in a building on another podcast that we have been talking on. Right. This is this is where every every rich people, um. This is what every people is also doing wealthy people who have a lot of income coming in now you especially you specifically
said rental income, but this can apply to business income. You know, you're your podcasting income, any other kind of business income, you can offset almost one percent of it. You get limited at the W two Capital gain interest. Those kind of income, they have some limitation, meaning a mere taxpayer can only offset up to five hundred time dolls single around Okay, it's
a five eighty right now, I think, but around five eighty. So if someone comes to you and say, I have a W two employee, I'm a W tw employee, I make a million dollar can I offer it in time million dollars? No, you cannot, there's a limitation. But someone like him rental and it's you know, I'm sure it's a million dollar cast way. It's a business. He can offer an entire thing. Even if he makes three million, he can offer an entire thing. It's possible,
very simple with depreciation that there's no everyone knows about it. If you're a render an investor, I hope you know about this. With million dollar cast he's probably recycling money, putting it back into the market, buying bigger, better properties, and the estonogy he does that if he buys a five million dollar asset. So this guy, I'm getting a very simple example. This what's happening. He makes a net let's say net tax will income is
a million dollars. He's amazing. Right after everything's paid off, he makes a million doll net income. What he can do is, let's say, no, I mean, he's probably gonna buying bigger property. Let's say buy a one big commercial mall or a strip mall area which is worth five million dollars. He goes buys that, and he does cost segregation and he gets to rise up right off a million dollars from that mall against his endal income.
So when he when he's building his long term wealth with real state, he's also not paying taxes on a million dollar which could he would probably would have paid three hundred four hundredthound dolly in tax. So basically said four hundred townd dolls by buying on the asset which is also building his portfolio. Is
that simple, There's nothing complicated about this, all right. So he's buying properties and then getting a cost segregation set he done so that he's able to increase the amount of money that he's able to I guess increased the amount of depreciation he's able to take exactly. So buy a property, if you do cost sgtigation, you can take bonus depreciation and other kind of accentrated depreciation. The first year that sifts in tier on the town laws in tax of foreign
town laws. If it's in high tax state, let's say then that foreign town laws you can put right back into own the properties, downtoayment and do repeat this again. Right, So that's why it's investors and real estate investors keeps on recycling the money which they could have paid to the government into their own portfolio and paydeo taxes. Is insane and nobody can achieve if you can do this really incredible and you've got several clients that that are doing this exact
strategy. Oh, I for me personally, we are as indicators outselves, and I mean we buy be commercial properties and that property with directly off states and millions in taxes and not even kidding. So you're right, this is this happens every single day in any any real estate CPA. I'm sure you talk to the one hundred percent of their clients are doing this and it's not
even that label. This year is and if you know, if you want to talk about tax planning, long term tax planning, if people have not filed that twenty twenty three taxes, so twenty twenty two taxes and they're waiting to finalize a few things. This would also consider doing cost segregation on their long term rental, not not just SOT term rental, long term rental even even they don't qualify as realest professionals or you know, they can release the
losses on the passive activity the laws rule. This would consider doing it because it has a long term tax planning effect. And we have talked about this before, so I don't want to go over this. But this guy is doing exactly what everyone should be doing anyway, but he gets to the offset million dollar. Not everyone's gonna have a million dollar obviously, so it's not any CPA decency pay can help you achieve this. That's really incredible. So
let me ask you about planning that. I feel like a lot of people just gather up their tax returns or get their tax receipts and their documentation and they just send it over to their CPA and there's no real thought that goes into it. Yeah, what do you think the benefits are of having someone that can actually sit down with you and come up with a plan, Like
is that something that people do? Like do they actually come up with a plan so that they can take steps throughout the year that are going to benefit them the next time they file taxes. Oh man, I cannot tell you how important that is. Any This is the thing. Not everyone is going to understand this because not everyone is paying you know, hunt it down, learn tax. But we were paying you know, fifty to sixty seventy town learning total tax. I want to say total tax. This is what people
don't understand because tax are complicated. Right when you go fire tax return, you might owe three thousand dollars and they were happy or you know, I didn't owe that much. But in reality, if you look at your paycheck and extra tax return, and if you understand your tax return, what's happening is you have already paid fifty thound dolls on hundred thound lows during your paycheck
periods. Right, so you're actually paying hundred thound dollars tax. But people get confused with three thound dolls what they have to file and paid during the tax parting period. Now, why it is important and what can be done is absolutely amazing. I'll give you two examples, because most of the tax planning come come at least and from what we do extensive extensive tax planning, and what I've seen in all my career so far is comes from two areas.
First area is entity structuring. Because if this guy's making million dollars, he could have done so much stuff, and hopefully he's already doing it, which looks like he's paying zero taxes, so he's doing it to have a right kind of entity, so you can hire your kids right, if your vehicle right, if you're home out of a few uniforms right, and also manage some deductions that QBI deductions, so many, so much things comes from
right entity structuring. And if you do not do it right. And this is what I only want you to understand, and this is gonna help your audience realize how big of the mistake they can make if they don't do tax planning in the right time. Right time is when you begin. I declined. You know, I get these emails and calls so many times a year, and they literally cried during the meeting. And this is what happens. They will go get a random entity LLCs corporations and start moving properties in and
out and put them in there. And when they go refinance the property, or when they have to buy out their partner or they have to things like that, they will pay three hundred four hundred pound dollars and extra tax. Okay extra, they could have not even paid, avoid it completely just because they had no tax planning done, entity structuring done when they were starting out. And people say, oh, I'm starting out, I have two properties. I'm just going to make it very easy and slow and not work with
CPA. That would be the biggest mistake you can. Actually, it's better to work with the CPA when you start out. Maybe make some investment with him, pay the money to have a right entity structor you can scale, and then maybe then don't work with him. Most of you know everything. That's how we should be doing it. That's the first example, right. The second example, any destructoring is fine. The second example is even more
important real estate. How much how big of the properties would you be buying? How does a new law changeine bonus appreciation affects your threshold because people go and buy property without knowing, okay, how much it can save your taxes? How much castlow is going to get impacted. Every single call with my clients, I always keep on repeating, okay for this year, if you want to offer at five hundred thousand, also be income this is your threshold.
These are the kind of properties should be buying if you buy storage units
versus single family household RB park. These are the threshold you should be buying so that they can go make informed decision and build their reosted portfolio in a way that they are not even paying taxes and recycle the resecle the money that we talk about, you can you will grow ten times faster if you have a good tax plan in place and come and have that quipit the grand back because you can scale up so much faster in a right compliance heavywey because tax
planning has one issue about tax savings, but it's all about also about our being compliant, not getting audited and then not screwing and in the down the road paying three hundred towns extra tax. Does that makes sense? Then? That does that really does? I feel like just a lot of people are and I know me personally, I'm probably leaving a lot of money on the
table by not coming up with a plan and not doing things right. So if anybody is in that situation and maybe they want to reach out to you and set up time to come up with the plan or to have you answer any questions. What would be the best way if for someone to reach out to you Investor FRIENDLYCPA dot com. There is a form we can fill out and we will reach out to you saying hey, let's skill call on my
first call. If I'm a very genus with my time, then I will just give them a just like planning, I'll do the planning in first twenty minutes. We have a system in place. I can do this very very quick. I can tell you, hey, this is what used to focus on any twenty three and future, and depending on what's happening, I give them everything on the first call. I don't even charge them. I do
that because I feel I'm being invested myself. I know how much complicated taxes are for you know, noncpas, and then it did just screw the investing. And I want people to invest in real estate. So what they want to do. You want to do is this type investor FRIENDLYCPA dot com and you'll find me or Google me or you know you email me at info at investor FRIENDLYCPA just saying hey, I want to scae you call. I'll lea out to you info at investor FRIENDLYCPA dot com. Email me and I'll respond
personally to every one of them as sees. As always, I really appreciate you coming on the show to help us out and share your tax knowledge. If you want to reach out to ASIS, it's investor FRIENDLYCPA dot com. Thank you so much for checking out this bonus episode. My name is Dan Lane and this has been the Rental Income Podcast.