00;00;00;00 - 00;00;23;01
Unknown
What's up everyone? Welcome back to the seven Figure Flipping podcast. It's Bill Alan. Before we get into today's episode, just a quick heads up. This one's a rerun of a previous episode. Back in February, Adams sat down with Ryan Kaysen from Advanced Tax Group. And we're bringing it back this week for a very exciting reason. If you filed an extension on your taxes, your return is due October 15th.
00;00;23;03 - 00;00;39;13
Unknown
And whether you're finishing last year or not, you've still got until December 31st to change what this year costs you. Adam and Ryan break down a ton of really cool strategies in this episode, but if you want to go even deeper on tax strategies, I'm going live for our Tax Masterclass on Thursday, October 8th at 5 p.m. central.
00;00;39;17 - 00;00;52;13
Unknown
The link to register is in the show notes and the YouTube description. All right, here's Adam and Ryan.
00;00;52;15 - 00;01;20;20
Unknown
Welcome back to the Seven Figure Flipping podcast. I'm your host Adam Whitney, and I have a guest today. It's my personal tax man and, asset protection guy. It's all the things that we don't think about as real estate investors, especially house flippers, who are making a meaningful amount of money and then giving 40 to 60% of it to the government.
00;01;20;20 - 00;01;47;04
Unknown
And today, my guest is Ryan Kaysen from Advanced Tax Group. Ryan, welcome to the show. Thank you. Thanks for having me. Excited to be here. Ryan. Ryan and Events tax group have been working with the seven figure flipping community. So people throughout our community who are all doing meaningful deals every year, and they don't want to worry about the admin.
00;01;47;11 - 00;02;23;21
Unknown
And before we get started on Intel, just a little bit of a story about one of the guys in the group, a young guy. I'll keep him anonymous, but one of the best investors flipping 180 houses a year, but super focused on operations but not focused on admin, not focused on finances. And he calls me a while back and says, hey man, I've been growing my business flipping all these houses, and I just got a bill from the government for a half a million bucks.
00;02;23;24 - 00;02;50;18
Unknown
Yeah, I haven't really paid attention to or paid taxes since 2020. What are what are my options? And I was it was hard for me because I couldn't really give him any good options other than what he was already doing. He's already a very smart guy. Very, very savvy investor. But after the fact is not the time to worry about your taxes.
00;02;50;21 - 00;03;12;09
Unknown
Taxes are something you worry about beforehand. So we just came out of the previous year, and we do a tax call in our community with Bill Allen, and we scramble in November and December to look at, oh my gosh, I did actually make all this money. And now I'm going to have a big tax bill. Maybe I don't have that much cash even in my bank.
00;03;12;10 - 00;03;33;09
Unknown
What do I do. So then people scramble to find a depreciable investment. And all these things they call Ryan, they call AG, like, what do I do? What do I do? A better way to do it is to be proactive. And it's not the taxes aren't doing yet. I know most of you won't pay till and you'll get extended, but taxes are doing April.
00;03;33;09 - 00;03;55;24
Unknown
That's when we have to file our taxes. So I want to have this podcast today and bring in an expert so that you guys can be proactive in your strategy and put some things in place. And that's why I brought Ryan on today. So, Ryan. Tell me a little bit about Advanced Tax Group and who you work with.
00;03;55;27 - 00;04;17;22
Unknown
Yeah for sure. So events tax group. The main reason that we exist and that the only reason we really exists is a really focus in on real estate investors. We try not to be a kind of, you know, note everything firm. We're specialty firm when it comes to real estate investing. So that's what we hyper focus on.
00;04;17;24 - 00;04;35;20
Unknown
We've been helping real estate investors for years now. I have 21. This is my 21st tax season. And what we do is we take kind of a holistic approach and look at what you really have going on and ask you the questions that you need to be asked that you didn't even know. You need to be asked to lead you down a tax rabbit hole for us.
00;04;35;26 - 00;05;04;21
Unknown
Our main focus is just making sure that we are looking at everything for you in in its totality from a business structure, estate planning, but also on the tax side, look into making sure that we are forward thinking opposed to backwards. A lot of times people come to me this time of year and always say that your tax returns are really made in June and July, opposed to January, because all three of those starts with JS, but it really helps you kind of focus in that during the course of the year, you should be looking at your taxes.
00;05;04;24 - 00;05;20;28
Unknown
What happens a lot of times, like you said, Adam, a lot of times people will go and sink money into a bill and they don't realize they should reserve some of that money for tax time. And then when it comes up, they have all their money side up and tied up and deals with no, you know, no basis on what to do for tax time.
00;05;21;00 - 00;05;46;11
Unknown
Yeah. Ryan, that's that's the difference between being reactive and proactive. And I would argue based on what I've seen in the last six years in the community, 98% of people are being reactive. And it takes a lot of pain for somebody to make that move. Like, you don't want to get hit with the six or multiple six figure tax bill to get to make you then start thinking about taxes.
00;05;46;11 - 00;06;09;11
Unknown
Do it now. Even if you're early in your journey, you need to start to learn and under stand the game. Now, Ryan, you said people don't put anything aside for taxes. So let's take a flip for example. Somebody comes in, they flip their first house, they make $60,000. How much should they be putting aside for taxes? Yeah. For sure.
00;06;09;12 - 00;06;26;09
Unknown
And we let me let me answer this and why people mess up to and the answer that question. The reason why is because a lot of people are coming from a W-2, which what I call a producer mindset, not an owner mindset. The producer mindset is you get paid, they take out taxes and you have money for expenses.
00;06;26;11 - 00;06;47;11
Unknown
So that's what they're used for. I used to. Whereas a business owner mindset is you get paid, you have expenses, then you pay your taxes. And so usually on a flip, I'm going to look at being really aggressive with everything that I can. I'm not like my goal with the flip is making much money, so naturally not to have that much on my expenses.
00;06;47;13 - 00;07;05;19
Unknown
But what I really want to do is focus on a lot of things that are outside too. I want to focus in if I have any, like mentorships and part of thought. Well, I have any outside expenses with vehicles, all those things, but usually on the flip I'm reserving anywhere from 20 to 25% on my flip for my taxes.
00;07;05;22 - 00;07;21;21
Unknown
That's what I'm setting aside. And then I'm talking to my tax guy after that flip, or at least once a quarter and saying, hey, how much that 25% do I need to draw up? How much do I need to free up? And that's where your accountant comes in and puts that pen to piece of paper, earlier than January for you.
00;07;21;24 - 00;07;38;24
Unknown
So a lot of it is people just getting out of that producer mindset, that W2 mindset where you're used to the taxes being taken care of for you, then you get money, you got to make sure you're taking care of your expenses, and then you talk to your tax guy before the end of the year. Let's dive into the W2 mindset real quick.
00;07;38;27 - 00;08;07;18
Unknown
So you have a job. You fill out a W-4 or W9, depending on if you're a contractor or your your W2 employee, and you tell them you know how many people you're claiming on a W-4, for example, and that it dictates how much they take from you. So the government takes money and then everybody gets really excited around tax season about getting money back.
00;08;07;21 - 00;08;35;17
Unknown
Which is a completely wrong way to think about it from my perspective. Because what you're really doing is you're overpaying the government. You're giving the government a 0% interest loan. Now let me ask you this for everybody listening. Does the government give you a 0% interest loan on anything? Not typically. So why would you give the government a 0% interest loan?
00;08;35;20 - 00;09;06;13
Unknown
The beauty of business is we're moving all this money in and out. You make that $60,000 on a flip. You have an opportunity to play the game in the tax code to where instead of giving that money to the government, you get to keep that money. And we don't talk about this enough, Ryan. It's great that I can teach you to make millions of dollars in real estate actively, and then you can get something called real estate professional status, which I'll have Ryan talk about in a second.
00;09;06;15 - 00;09;35;09
Unknown
But it's better when all the money that comes in, you get to keep it. So, Ryan, for those people who are doing this in their business and they're giving the government, they're used to giving the government alone, they just jumped into the real estate side. They're starting to bring some capital in. What are the strategies that they should be thinking about right now to make sure that they keep their money instead of giving it to the government?
00;09;35;12 - 00;09;57;11
Unknown
For sure. One thing to bring up Adam is a lot of people. Here's my biggest pet peeve in the tax world. You guys will learn some of my pet peeves on this today. My biggest pet peeve in the tax world. Like you said, some people get super giddy about a tax refund. They're like, yeah, that's great. I actually when I present a lot, I bring up this graph of two people who made 100 grand and one person got a three grand refund.
00;09;57;12 - 00;10;20;19
Unknown
One person got a three grand, three grand balance owed. What they do is everybody is trained to only look at refund and balance owed. They're not focusing on what we call total tax. That's all that matters. So total tax is how much you owe for the year based on your income. So a lot of times people fixate and you're like, well, on a business on ten grand I'm like, yeah, but you're told the tax is ten grand and you made 200 K.
00;10;20;20 - 00;10;42;01
Unknown
That's a win. So you don't need to focus on what you owe. You need to focus on your total tax because that's always the way you look at it. Other net. You're giving out that loan to the IRS. One thing I do bring up on, things you could do now to really help yourself, the IRS. Their biggest terminology they use is ordinary, necessary if you're ever going to audit, they say, hey, tell me how that was ordinary, necessary.
00;10;42;08 - 00;10;57;16
Unknown
And then it is our position to have to justify that. The thing that you could do is look at things that you have that are ordinary, necessary or business and things that are there for your business to really help you elevate it and deduct it. Remember, we get that payment. Then we have our expenses. Then we have our tax.
00;10;57;22 - 00;11;15;20
Unknown
So the payment you want to be the max your expenses. You want to be the max. And then down below you want your taxes to be the less the least. So with that being said, some things I usually say, especially for real estate investors, I'm going to look at taking number one if I'm just starting out, what it took for me to get that first deal right.
00;11;15;21 - 00;11;33;01
Unknown
A lot of times I'll go to networking events, mentorships, traveling. If I'm going out and having to do a lot of advertising, marketing, ad spend software, I'm deducting all those things even before I turn a dollar. The reason why I'm doing that is because these are start up costs. No business in the US just starts without money.
00;11;33;04 - 00;11;49;16
Unknown
That doesn't really exist. If that does exist, somebody DM me and I'm happy to look at it. Me too. Yeah. For real. Like it doesn't exist. So the government gives you all these startup expenses. Always say, because I'm a bigger guy and I look at a restaurant, they got a lot. They do before they serve you plate of food.
00;11;49;18 - 00;12;08;25
Unknown
So look at all your startup expenses. If you're going pretty heavily, and you're already flipping and going and going hard. There's always these things that I call, a little bit more aggressive deductions for yourself. Now, some people call this loopholes, which I hate. I find that to be pretty corny for lack of a better term. It's like, oh, you found a loophole.
00;12;08;27 - 00;12;24;13
Unknown
No. You just read the tax code. Get off of Instagram. I saw telling me a loophole. Tell me really what that means. So if you hear anybody on Instagram saying they found a loophole, they didn't find a loophole. They just finally read a book called Tax Code. So with that being said, I always look at my ordinary necessary.
00;12;24;14 - 00;12;42;03
Unknown
Then I look at my aggressive based on where I'm at. Those are things that you look at. Because if you ever get an IRS audit not to bring that word up, because that's a terrible buzzword. The IRS is always like, hey, prove to us how this ordinary necessary. And that's something that we always stand by. How often do people get audited, Ryan?
00;12;42;04 - 00;13;00;15
Unknown
Have you ever went through an audit with anybody? Yeah, yeah. So right now, you remember a couple of years ago, Adam, and they're like, hey, we're going to hire 88,000 new people for the IRS. That's right. Does it? Nobody even listening to his podcast had his any friends who are hired by the IRS. That nobody. Really?
00;13;00;18 - 00;13;21;26
Unknown
Yeah. I didn't mean any young kids out of college. Was like, you know what? I grew up, I'm gonna go work for the IRS. Nobody did. So now a lot of it's automated. And audits are. They're not common, but they are more common now than what they were back when I started 21 years ago. And the reason why is just because it's what we call correspondence audits.
00;13;22;02 - 00;13;37;08
Unknown
A lot of people think that the IRS going to come kick down our door and have a face to face audit. You know, we've helped produce over I mean, at this point, my career, like half a million returns and I've seen one face to face. But the correspondence audits, they they happen and they're very easy to respond to.
00;13;37;09 - 00;13;55;19
Unknown
As long as you have an accountant who always has a difficult position, which when we do a returns, that's always what I'm looking at. It's like, can I defend this person? And is. Yes. Then we take it. There's a difference in being aggressive and aggressive, but smart. And we're aggressive but smart. But yeah. Seeing audits before. Okay.
00;13;55;21 - 00;14;17;09
Unknown
Tell me, tell me. So there are people out there who hear you, but they're still a little nervous about it. But, Ryan, how do I know? How do I know? Like what? What do I have to do for an audit? What? What information do I have to have to make it defensible? Like, what would that mean? What would that look like?
00;14;17;11 - 00;14;38;17
Unknown
Yeah. So you got to look at audit statistics. I do, I could self prepare my own return. I could do my own return. Do I do my own return? Do I sign it? No, I have one of my colleagues sign it. Number one, most, most audited returns are self prepared returns. And then number two, most audited returns are sole proprietorships.
00;14;38;19 - 00;14;58;18
Unknown
So for any of you out there who are a self prepared sole proprietorship, you're iris target number one. You have the most audits. So that's one thing I look at. To number one, I forded my I like, make sure I have everything prepared and look at stats based on that. There's other dumb things that you'll see people audited on.
00;14;58;22 - 00;15;16;08
Unknown
People just round up and guess that expenses, like I once saw an audit where a guy brought it in and was like, can you all help me? And he literally took every expenses, $10,000 rounded up. And I was like, no, man, I can't help you. And another thing is just substantiate with the accountant, make your accountant. If your accountant doesn't deal with audits, leave your accountant.
00;15;16;14 - 00;15;34;11
Unknown
Because guess what? They have no skin in the game for you. For every return we sign, we sign. If you get a IRS letter like I'm on the hook with IRS letter with you, I took the position on that return. So as a client, you're or as a just normal person, any good accountants going to say your responsibility is receipts, which are a pain to track.
00;15;34;13 - 00;15;50;22
Unknown
But that's that's really one thing that's that you need to have there. And you also need to have justification from your tax preparer or your CPA to really do it. So a lot of CPAs, and if they are like, yeah, I'll take it because you said take it, you need to give them a high five and leave their office.
00;15;50;25 - 00;16;10;09
Unknown
What do if you do an audit and you don't have a receipt for something, what do you do then? You know, sometimes you'll just have to be like, okay, well, right now, we're in a world of electronic receipts, so I could kind of go over a couple of things to make that easier. But right now, like, you have to produce receipts.
00;16;10;09 - 00;16;27;11
Unknown
If it's over $100, you'll try to produce those. If not, you say, hey, I don't have them. An IRS will actually work with you. What they're mainly going after is like, bigger expenses. Like when somebody doesn't have a car receipt or a vehicle receipt or somebody about 16 tractors. Well, you should be able to call a dealership and go get that.
00;16;27;14 - 00;16;42;20
Unknown
And so just make sure that you are getting those. What I like to do if I'm just starting out and even now I'm old school, y'all, I will. I will admit that right now. I started a business. My first business was when I was 24, and then I've had multiple entities since. This is how I keep my receipts.
00;16;42;23 - 00;17;02;17
Unknown
I have an LLC named Ruger Route LLC. Somebody in Louisiana is going to be like, there's a fellow Cajun. You're welcome. They'll know what Ruger means. That means Cajun werewolf. So at least I'll learn something today. It's a very distinct werewolf, but I have Ruger LLC is one of my LLC names, Ruger LLC. I go open up Ruger LLC at gmail.com.
00;17;02;19 - 00;17;20;13
Unknown
That email is not for anything else but keeping my receipts. And then on my sidebar I have what I call chart of accounts or or categories of expenses. When a receipt comes in for five minutes every month, I drag and drop my receipts into those folders, their time stamped. I'm good. I can find them by year, and then I'm ready for an audit.
00;17;20;15 - 00;17;42;09
Unknown
Oh, that's a beautiful system that you've got there. I think that's brilliant. I hope that that doesn't go over people's heads. I mean, you just got my brain firing on that. Okay, I want to I want to shift gears just a little bit. Ryan. So we talked about the audit, and I mentioned what we can do now to be proactive.
00;17;42;11 - 00;18;07;06
Unknown
And I want to talk about some of those things, like, what are the things, the Augusta rule, the depreciation. 179. Like, what are all these things that people should be doing starting now, leading up to the end of this year to reduce their income, their taxable income down to zero? And do they have to be real estate professional status?
00;18;07;06 - 00;18;29;03
Unknown
What is real estate professional status and how do you get it? Real estate professional status starts in the core of it really starts from IRS course case, a court case like everything else does. Basically, the IRS has a limitation on how much passive loss you could take or some real estate losses you could take. If you make over $150,000 on a W-2.
00;18;29;06 - 00;18;48;13
Unknown
So if you make over $150,000 on a W-2, real estate professional status helps you be able to override that and start taking those losses at their maximum. The rules for real estate professional status. This means that you can take the losses if you qualify. Now some people are like, man, that sounds really hard. I'm not a real estate professional.
00;18;48;13 - 00;19;08;28
Unknown
I'm not driving around selling houses. It's not that hard. So let's break it down. First thing is only once. If you're married, only one person needs to qualify, not both. That's a critical thing that people miss out on. They don't understand that. Now, the thing is, there's two things called material participation. Active material just means you're kind of point guarding the situation or overseeing it.
00;19;08;29 - 00;19;30;20
Unknown
Active means you're getting your hands dirty. Either one. You could qualify material participation of 750 hours. Somebody is going to say, man, that's a lot of hours. It's really not. If you already got through a real estate for 750 hours a year, it's like two hours a day. Yes. Not that much. I mean, that's that's a hobby. I, you know, I doom scroll sometimes for that when I'm.
00;19;30;21 - 00;19;49;18
Unknown
When I'm trying to fall asleep. With that being said. Yeah, just there's that kid from high school. Yeah. But with that being said, on the 750 hours, you could track it. Usually I track mine through. I just use Calendly. I have all my appointments in Calendly. And let me tell you right now, that's easy. They're all timestamped.
00;19;49;18 - 00;20;13;14
Unknown
I take notes after every appointment. Y'all say, well, that takes a long time. Well, yeah, it does, but that's also adding to my material participation. So there we go. That's an administrative tasks there 750 hours. You have to have properties. That's another thing. You can't just be out there spending time with no properties. And the third thing is really there is that you actually are, you know, actively pursuing real estate.
00;20;13;14 - 00;20;32;03
Unknown
That's something that you're doing. Now, some of y'all, if you're under 150 K on W-2 or you're already doing real estate full time or your agent or broker, you're going to easily hit that. Another thing that some people call and you'll you'll see this all over the internet. And it makes me cringe every time when people are like, hey, there's a short term rental loophole is what they call it.
00;20;32;05 - 00;20;52;07
Unknown
And it's like, shut up. It's not a loophole. Yours. Now, finding this out this year like this is it's been around forever. Don't be a don't be a nerd. But all these guys on Instagram call it a loophole. If you have a short term rental, it's only 100 hours. I'm not encouraging anyone to say, hey, go short term rental, but this is a rule 100 hours of active participation.
00;20;52;12 - 00;21;10;08
Unknown
This means that you're actively working that rental, that you're cleaning, that you're that you're basically going in there cleaning or you're going in doing actual work to it. And another role in that short term rental is nobody else can have more hours than you. So for some y'all with short term rentals, you're like, hey, my cleaning crew has over 100 hours.
00;21;10;11 - 00;21;30;17
Unknown
Well, how do you solve that? Go get 2 or 3 cleaning crews. Hedge and you're so good. So you have to have 100 hours, and nobody else could do more work than you. Meaning more hours. So diversify if you're going to go that route. That's a real estate professional status in a nutshell. There. And then let's go over some aggressive tax deductions that help real estate individuals.
00;21;30;17 - 00;21;51;18
Unknown
We can start with the basic stuff. You know, y'all could there's a lot of basic things that will teach you that we like to teach. Let's get into some nitty gritty because it's a podcast here today. Another thing, one thing that you're hearing right now, everywhere. Is he a gust rule? This is section code two 880 a, if anybody wants to Google it later.
00;21;51;23 - 00;22;13;01
Unknown
Go ahead. But that's the section code. We talked a little bit about LLC, so we won't go to any of my other weirdly named Cajun LLCs that have. There's also LLC and Gregory LLC, but we'll just go over. Guru guru guru LLC, me and my wife, we are both members of that LLC. We're both owners of it.
00;22;13;04 - 00;22;31;20
Unknown
Rigorous. My wife is a physician's assistant. That's what she does for a living. She knows medical. She tells me to take care of myself, and I'm like, yeah, whatever. And then I tell her to take care of. I'm like, let me teach you about our financials. And she's like, yeah, whatever. So once a once every once in a while, Ruger LLC has a meeting with this members.
00;22;31;22 - 00;23;09;15
Unknown
Me and my wife, we legitimately have a meeting because we have kids. And I need to sit down and really talk about the business. LLC rents a space to have that meeting. What happens is LLC rinses space, but conveniently, the space is my personal home that is renting. There's a tax rule that if you you can rent your own home for 149 consecutive days based on the market rate of a room renting meaning like a boardroom or work, a, you know, boardroom, hotel room, meeting room, whatever type of room.
00;23;09;17 - 00;23;32;25
Unknown
You can run it for 14, nine consecutive days at that rate. And you do not have income tax on the home, on the rent that your personal home is receiving and you get to tax deduction from the business. So Ruger LLC comes in and it pays pays my me personally $800 a day for a meeting room. You times that by 14 I have a lease agreement.
00;23;32;25 - 00;23;49;22
Unknown
Everything in there with myself. And guess what? I have a tax deduction. And I had a I had a meeting and I checked those boxes that I need. That is the Agusta rule. That is amazing. So that's one that's one thing. So that's a hundred bucks a day for up to 14 days is what you just told me.
00;23;49;23 - 00;24;18;28
Unknown
It could be more. I'm sure that's my market rate market. Yeah, more or less. Now, I I'm based on Salt Lake City, Utah. I do my market rates like, based off of ski season. Yeah. And I think that's an important distinction on the gusta rule in I've seen some case law where folks, took advantage of it in a way that the IRS wasn't okay with where they're they're charging $5,000 a day for something that's worth $800 a day at max.
00;24;18;28 - 00;24;39;09
Unknown
And of course, then they get audited and then they get in trouble. So you have to really be a good steward and ethical about what the true market rate is. Not like Ryan said. You know, you can say, hey, ski season is a high season. That's reasonable. During that season, I'm going to use that market rate and you can defend that, but you don't.
00;24;39;11 - 00;24;58;05
Unknown
What you don't want to do is go, hey, my three two, 1200 square foot house in the Midwest. I'm renting it out for 14 days for five grand a day. Like, that's not going to that's not going to pass a sniff test. You're going to get yourself in trouble. So the Agusta rule is one thing, Ryan. And let's go into like maybe 2 or 3 more of the biggest leverage things that people can do.
00;24;58;05 - 00;25;15;29
Unknown
But before we do that, I want to talk about because we're talking about losing money. And I think this could lose people. You're talking about how do I create expenses and losses in my company? But wait a minute, Adam told me to be profitable and stop listening to these idiots talking about revenue until only talking about net profit.
00;25;16;02 - 00;25;44;14
Unknown
What does it mean to take a paper loss? Right. Because we're talking about paper losses. There's like the actual finances and the money. And then there's what goes into the taxes. Yep. Let me yeah, let me tell you, like, I've had some of the poorest people be the richest people. In two ways. One way is I've had people who make millions of dollars spent every time they get, and they're like, right off everything.
00;25;44;14 - 00;26;04;01
Unknown
And then I'm like, hey, can you pay this $2,000 tax bill? And they're like, I don't have money. Help me. I'm poor. And I'm like, well, you just bought a Bugatti. Like, I don't know what you're doing. Don't spend money and say it's a tax write off. Like you never spend money just for tax write offs. That's a rule for me.
00;26;04;05 - 00;26;24;10
Unknown
If you're just going out and saying it's a tax write off, it's tax write off, great. You spend money to make money every time. So and that's how I've always ran a business. A paper lost by IRS definition or by accountant definition, is basically an expense that you're getting without paying extra money. It is something that you're getting like, we'll go over depreciation here in a minute.
00;26;24;13 - 00;26;44;00
Unknown
But paper losses is what showed up on paper as a loss, when in reality it's not a loss. So what does that mean. What does that mean. How can that be true? You're giving me a dichotomy right now. How can I make money but show a loss? So let's cover depreciation and stuff like that then. That's right. Yeah.
00;26;44;06 - 00;27;03;09
Unknown
There you go. Adam led me down the hole pretty easily there. He's like, take it. All right, guys, whenever you buy a house, let's take a single family house. As long as that. And a lot of times people have this misconception and they're like, oh, I'm only going to take it as new. No. Whenever you purchase it and it's new to you, you start depreciation.
00;27;03;15 - 00;27;23;15
Unknown
If you have a common thing I'm seeing right now is I'm seeing a lot of accountants not take depreciation, which blows my mind because the IRS is assuming you're taking it. So you better take it. But whenever you buy a house, you take the purchase price, and then you divide it by the livable age of that house, meaning how long it will exist.
00;27;23;18 - 00;27;53;13
Unknown
And IRS says that's 27.5 years. So if I have a house that's $275,000, I will take $10,000 to. If I'm only collecting $8,000 worth of rent on that house. I have $10,000 plus my other costs. I am not now at a loss, although I received rental income. That is how you make a paper loss. There's ways you can accelerate this, where you can stuff it in and you can say, hey, I don't like the 27.5 year old.
00;27;53;16 - 00;28;12;15
Unknown
Let me see. Can I accelerate the suppression and take it in a 5 to 7 year window? That's another way you do it. The way you do that is you have to have a cost segregation study, and then you take it in five years. So now that $275,000 house you, you divide it by five years opposed to ten.
00;28;12;22 - 00;28;31;01
Unknown
And that I was, sorry, opposed to 27.5. And that helps you accelerate that loss hair and take even more of a paper loss. The thing I do keep in mind, I do not do a cost study on a house, less a I'm going to hold that house a little bit longer term and then be it's actually worth it for me doing a cost.
00;28;31;03 - 00;28;48;13
Unknown
If you're about like an $80,000 house, you might not want to do it necessarily unless you have a portfolio of them. The reason why I say something you want to hold or a little bit longer term is because if you ever sell that house, you sell it at its depreciated value minus the sales price equals your gain.
00;28;48;18 - 00;29;12;22
Unknown
So keep that in mind. So what happens? So I buy this house I or I invest in an apartment or I invest in a real estate asset and I get depreciation. I do a cost study or I participate in somebody else's Cossacks study. I get this paper losses k one loss. It comes off of what like does that mean that my tax bill.
00;29;12;22 - 00;29;32;11
Unknown
So let's get a $20,000 loss Ryan. And my tax bill is $20,000 or projected to be $20,000. Does that mean that it takes -20 off my tax bill, or does it take money off my income? Takes money off your income. Okay. Can you talk about the mechanics of that? Because I think there's a lot of confusion about that.
00;29;32;11 - 00;29;54;22
Unknown
So I make $600,000 this year or $1 million this year. My goal is to get my to show that my income goes down to hopefully where it's not taxed, even though I made the money. I'm taking these depreciation, these k one losses. And how does that mechanics of that work. Yeah goes back to our goals. Total tax is always our goal.
00;29;54;23 - 00;30;18;07
Unknown
Not not refund or balance to. So basically if I make 600,000 let's do $100,000 for an easy one. All right. Let's say I have $100,000. And now I'm like, all right, I had $20,000 in ordinary business expenses, cell phones, home office, all those things, 100,000. Then let's say I take 20,000 ordinary. Now I'm at 80 and it's like, man, I need some words used to squeeze.
00;30;18;07 - 00;30;37;03
Unknown
Right? Let's say I go and I do like I do a conference and that's, let's say $5,000. All in all, let's say ten freeze in numbers. So now I'm at 70 and then I'm like, well, let me guess the rule my house. And then that's another 15. So now I'm at 55. So this is driving it down. I went from being taxed on 100 k.
00;30;37;04 - 00;30;53;01
Unknown
Now I'm at 55 K. And then let's say man where can I do to get down to 55 k. Oh yeah. By the way I have my two kids and we'll go over that here in a minute. We're working in my business. I'm paying them $14,000 a year. I'm going to drop that down. I'm going even lower of us say 35 K.
00;30;53;02 - 00;31;12;04
Unknown
Yes. Or simple math at that point. So I'm at 35 K that my business has made and I'm went from 100 K to 35 and I'm like, man, that's a huge drop. But let's say I even want to get a little bit more aggressive. And that house I purchased purchase I'm going to go to a study on and then up taking another 4050 K of depreciation on it.
00;31;12;07 - 00;31;28;13
Unknown
Well then I wiped out my whole tax bill plus some. So a lot of times you're going to start low, see what you have. And then you're going to deploy aggressive to bring it down. Well that 100 K is now down to zero and actually is negative. And guess what I don't have a tax bill at that point for my business.
00;31;28;14 - 00;31;46;28
Unknown
I've wiped it all out with things I'm already doing without going out and buying a new, you know, new Rolex or buying a new whatever you want to buy or a bunch of suits like I've wiped it out with just organically and things I'm already doing in my day to day life in business. And yes, there's a cost of doing business.
00;31;46;28 - 00;32;05;23
Unknown
And so I went from 100 K to negative on that to then get rid of my total tax. So those are the things you need to keep in mind. You always got to look at what can you really get aggressive on. Start small get aggressive. So that's that's how chip away at my tax bill every year. Now there's some years naturally where I'm at like again and I'm like well cool.
00;32;05;24 - 00;32;32;06
Unknown
My total tax is still, you know, 15, 20%. I'm fine. There's some years where I have that and that's totally fine, but that's all I'm looking at as my total tax and making sure I'm offsetting that. Yeah, that's I think just people understanding how the losses show up on your taxes is really, really important. So, you know, in this case, I think a lot of people go, I need to I need write offs.
00;32;32;06 - 00;32;50;12
Unknown
It's a write off. You know, those those memes where it's it's a write off. Yeah. It cracks me up. Well, like, what does that mean? It's a write off. And I think what people need to understand is that if I take a paper loss, a depreciation loss from a Kossak study, I get a k one that says you lost 100 grand.
00;32;50;15 - 00;33;08;28
Unknown
That doesn't take 100 grand off my tax bill. That takes 100 grand off my income. And effectively, what that does is it changes your your marginal or effective tax rate. So I was maybe made a bunch of money and I was being taxed at a 30% or 32%. And now I just bought myself down to 22 and then 12 and then hopefully nothing.
00;33;08;29 - 00;33;27;08
Unknown
Right. Is that is that somewhat accurate? That's my goal. Like I've been in investing in real estate for 16 years now, 15 years now. I had to do the math on how old I was. 15 years now I've been investing. And if you ask me, I've never made any money on real estate. Have I put money in my pocket?
00;33;27;10 - 00;33;52;22
Unknown
Yes. Have I put money in the government's pocket? No. And that's where paper loss comes into play. Yeah. So I'm doing everything I can do to offset my taxable income. Possibly. I've also ran large CPA firms. And, you know, people are like, well, isn't that a hobby? Isn't that a hobby? No hobbies. When you're not bringing in any revenue, there's a difference in revenue and there's a difference in net income.
00;33;52;29 - 00;34;13;04
Unknown
Revenue is your top line or your gross income. That's what virus is like. Hey, that person's not a hobby. They brought in a million. Net income doesn't matter as much. So as long as you have a profit motive and intent, you're not a hobbyist and you're allowed to have a paper loss if it is legitimate and if it is something that you're actually taking.
00;34;13;07 - 00;34;32;05
Unknown
Now, somebody on this podcast came out right and told me I wouldn't pay any money on income tax. That's not true. I just told you you could be aggressive, but smart. Ryan, here's something I'm doing right now. So I have, I have three legs, three stools to my real estate empire. Stool. One is active income. I'm turning properties over.
00;34;32;06 - 00;35;03;27
Unknown
I'm making fast cash, 50, $60,000 checks. Stool two is. I'm building wealth through rentals. I'm buying those 30 year mortgages, those 30 year mortgages. And I can hold these for a long period of time where somebody else is paying the debt and it's appreciating in the market. And then stool three is what I call my mid-range game. In my mid-range game, this is where I get the most of my tax benefit, and that's when I'm putting my money into apartment buildings, either as a general partner who's taking the deal down myself, or I'm investing in other people's money.
00;35;03;27 - 00;35;31;01
Unknown
And like, for example, right now, Bill and I just to invest with on a deal that Jay Scott put together, Jay Scott, the, you know, OG flipper from Bigger Pockets, wrote a bunch of books. So Jay's a friend of ours, and, Jay put together an amazing deal down in Texas. That is a new construction. This deal is interesting because it's a three year play.
00;35;31;01 - 00;35;49;24
Unknown
I want to talk about this play because it matters. There are tax benefits in it, but they're short term tax benefits because on year three or beginning of year four when it sells that depreciation, that write off that I claim gets recaptured. And I do want to talk about that in a second. So why am I doing this.
00;35;49;24 - 00;36;14;23
Unknown
Deal number one I believe in the deal. Number two, it's got like an insanely good debt that I've never seen before, which is called the HUD. 221 4D loan. It's a 40 year fixed rate loan on an apartment, like literally the most insane thing. And it's really, really hard to get. And they have significantly excruciating underwriting, which tells you that the HUD team that only does two of these per market is willing to bet on this apartment.
00;36;14;23 - 00;36;32;11
Unknown
It's a good one. So what happens with this? We're going to buy this thing. We already own the land. We're going to build this thing. We're going to build it in year one. We're going to start to fill it up as it comes online throughout year two, stabilize it and sell it in the end of year three, beginning of year four.
00;36;32;14 - 00;36;53;12
Unknown
What does that do for me? Does a couple things. Number one, I get the normal investment returns, I take my cash and I invested in this property. So I'll probably put 50 or 100 grand in it. So I put 50 grand in this property and I'll get I'll get to participate in the 100% bonus depreciation, but it won't be in 2026 because there's nothing there.
00;36;53;12 - 00;37;19;05
Unknown
They're building it. It will be, however in 27 and 28. So I'm I'm so proactive that I'm going who I'm going to plant the seed in my backyard that's going to make me money over three years, a 1.6 x return over three years. And then I'm going to also get these write offs in 27 and 28, because I think to myself, am I going to make less money over the next few years or more money?
00;37;19;06 - 00;37;44;05
Unknown
I'm going to make more money every year. I'm in my best. I'm 40 years old, like I'm in my prime in terms of working and earning time, right? So like every year I'm trying to make more and more and more, and I'm trying to plant those seeds in all these different investment places. But while I'm doing that, I'm using this strategy that allows me to invest in this apartment building and even bring my friends and family in it with me, and we're all going to get to make money together.
00;37;44;05 - 00;38;15;13
Unknown
We're going to get this paper loss as K1 losses, depreciation. So I just wanted to like, mention like that's a real tangible strategy that I'm literally using today. But what we didn't talk about is we touched on it, but talk about depreciation recapture for a second. Yeah. Which by the way, I mean, Adam, those deals are always like for me as someone who is I call my like I'm getting old entire y'all.
00;38;15;16 - 00;38;31;13
Unknown
I'm kidding. I'm really not. But I'm 41. This is also my prime. But for me, as far as the real estate, like, single family burns a lot of people out pretty quickly. And I get that. But for me, I'm always like, man, I'm going to have a next 2 to 3 good years. I know my projections.
00;38;31;13 - 00;38;53;21
Unknown
It's like I'm always going to go shove money in a deal like that, because I'm looking to offset things ahead of time that comes to that proactive planning. Recapturing depreciation. I will give a real life example. During Covid, we're in this little small town in Utah, and there's a office building across from me and a guy who was called, he's like, hey, I'm just going to get rid of this building.
00;38;53;21 - 00;39;13;10
Unknown
And yes, we did it. And I was like, all right, man, that sounds awesome. Yeah, it's like you want to sell it. And he's like, yeah, I'll sell it. And then he it was all in like 480 K. And so I was like, well, I know there's no buildings, commercial buildings in this area. Number two, I know this is the most expensive zip code in all Utah.
00;39;13;12 - 00;39;33;11
Unknown
That's a no brainer. So when bought the building, did a study on it. Personally, I was like, hey, we're going to hold this long term. I did a course. Wiped out a lot of my tax bill on it. Will you say 500 K for rounding up numbers? I ended up taking 200 K, work the depreciation. In two years, I'm cruising.
00;39;33;11 - 00;39;48;23
Unknown
I'm like, hey, I got this for five years. I'm going to take a hundred k work in appreciation for five years. That third year, a guy comes in office, he says, hey, I need to get out of the house. Been working deer Covid. I just want to buy the office building. And we're like, nah, man, we're we're good.
00;39;48;23 - 00;40;10;21
Unknown
We got a good deal on it. We don't want to sell it. And he's like, you guys take cash. And it's like, well, who doesn't take cash? Cash? Skiing? Yeah, yeah. You got cash? Where's this cash at? Guy literally comes in and buys it for cash for 700 K. So everybody's like, man, that's a good deal. We're going to go 500 700 is 200 K again.
00;40;10;23 - 00;40;33;06
Unknown
Oh nothing. Didn't even touch a property. Never did anything to it. Yes a circumstantial gain is what that one was. So a lot of times people are like, well yeah, Ryan, you made 200 K. That's awesome. That's all your tax on 200 K. Know what I am tax on is already took 200 k work to depreciation. So I'm down to 300 K.
00;40;33;09 - 00;40;53;08
Unknown
Then it's at 700 I'm actually a 400 k gain. So that is what you call the depreciation recapture is when that is going down in value and you still sell it at a premium. You go from that depreciated value all the way up to that cost. You sold it as. So there I am. And I got 400 K on this deal.
00;40;53;09 - 00;41;10;05
Unknown
And a lot of times people will be like, oh man, that's a lot of taxes for me. I'm like, no, I got that depreciation benefit. Sure came back to bite me. I still made some gain. But then also to there's a side of me to it's like, well, that's a long term capital gain, which is only 20% opposed to my ordinary income if I held it under a year.
00;41;10;05 - 00;41;28;26
Unknown
So there's things there I think about. But that's a real life example of a depreciation recapture. Yeah. And I think I think a lot of people like well go, well, if I'm just going to save taxes this year and then pay them all, but you're not paying them all back. Yeah. Like depreciation reactions mean you're just adding like a commencement amount every year.
00;41;28;28 - 00;41;44;21
Unknown
And here's the other thing too about the game. This is a game. It's called the tax game. It's literally the rules of the game. It's in the tax code. It's like ten 000 plus pages. Don't recommend reading it. Just get an expert who's already read it, a nerd like Ryan and me, because we like that kind of stuff.
00;41;44;24 - 00;42;05;04
Unknown
Well, loopholes. If it makes everybody feel better, I'm feeling. Yeah. So, the game is every year I know I'm going to make money. How do I keep and preserve my money? And the more money you make, and the less you pay in taxes, the more money you keep. The more opportunities you get, the more opportunities you open up, the more tools open up to you.
00;42;05;04 - 00;42;29;13
Unknown
As these tools open up to you, you start to not just execute money making activities. You start to do wealth preservation activities. Now the game is I already know how to make money. How do I keep it all? How do I keep it and keep it growing? And a big the biggest, the biggest expense in your business isn't marketing and isn't people at your tax bill.
00;42;29;15 - 00;42;54;24
Unknown
So when you can master that, your company, your business, your lifestyle can all be super charged. Okay, Ryan, this has been incredible. Can you talk to me a little bit about the advanced tax group team for sure. All right. So let me go over this. Well, I started when I was I have to go back a little bit when I,
00;42;54;27 - 00;43;10;10
Unknown
What? I was a kid, I wasn't that smart. Believe it or not, anybody's gonna be like, well, this got, believe it or not, only because they're myself that smart. I'm smart in a few things. Why was a kid? I had a teacher in elementary school and I was struggling reading, and she started giving me baseball cards to help me read.
00;43;10;10 - 00;43;28;29
Unknown
She was a meanest teacher ever, but she helped me get she knew how I baseball, so she gave me baseball cards and I would always memorize the stats. That's why I liked on the back. So I'm like, here's how batting average work. So I've always been a nerd for math. Whenever I started, whenever I started, I was going to college, getting the accounting degree, accounting and finance.
00;43;29;01 - 00;43;49;02
Unknown
I started working for an old school firm, and my first project was getting me a 50 page, a 50 page tax organizer to send out the clients email out. And I was like, there's got to be a better way. So for me, since I was really young, starting in the accounting world, I grew a firm to thousands of, you know, tax returns in real estate.
00;43;49;04 - 00;44;09;26
Unknown
One of my things was was like, there has to be a simpler way for people to buy Jess and learn. And that's been our, like kind of core focus of ATG. We try to take everything holistically. We try to meet you where you're at and accounting world. My biggest issue right now is your account. You'll go into your accountant here in March or April and they'll tell you what you can't do.
00;44;09;28 - 00;44;32;16
Unknown
They'll say, you can't do that. I always try to empower my clientele and everyone here who is a staff member of mine, to tell people what they can do. So I have a mixture of accountants here who are people who tell you what you can do, who want to tell you what you can do. I don't do a since I've been in the accounting world for so long, they first try to dress me up in a button down shirt and a pair of khakis.
00;44;32;16 - 00;44;52;14
Unknown
And then I learned about how corporate accounting was. One thing I really hated was this firm called billable hours. Really hated it. But as where I talked to a client and I would build them six $700. Our used to talk to them. You can sit there and talk to me about your dog or cat or whatever you wanted to, but that clock was ticking for money.
00;44;52;16 - 00;45;07;14
Unknown
I never thought that was fair for a client. I never thought it was fair. That was the thing that a lot of these larger accounting firms have is billable hours. I do not do that at all. Anytime you call me with questions, need plan, and need help with strategy or consulting, my staff does not do billable hours.
00;45;07;21 - 00;45;28;05
Unknown
We we are here to help you because really, I pay attention more as a firm to clients retention that I do about client acquisition. I only care about you say with me long term so we could grow with you, not just stay stagnant. And that's also another thing that people ran across. A lot of y'all who've been in real estate for a while, your accountant didn't grow with you.
00;45;28;06 - 00;45;50;01
Unknown
You grew. They didn't grow with you. And so that's a little bit about us. We help people with their taxes, tax planning, strategy, limited consulting also respond to our s letters. If we do the return entity formation, we didn't. I mean, I help people at the end of the in asset protection. And we also have a team full of lawyers that do trust.
00;45;50;03 - 00;46;13;05
Unknown
So that's a little bit about us. We've been around for a while. We take a holistic, client centered approach and oppose anything else. Yeah. And, you know, in seven flipping, you know, you're in these communities is masterminds, coaching programs, you name it. There's a lot of service providers, people who do data, people who do marketing, people do taxes.
00;46;13;05 - 00;46;37;15
Unknown
People do like we only let people in who are value matches that we do life with that we personally use. So Ryan is my CPA. Like Ryan does my stuff, my literal personal stuff. I literally right before we get this call sent Ryan about, I don't know, 10 or 11 LLC. I'm like, cool, Ryan, I need you to do all these LLC for me and untangle my entire mess.
00;46;37;17 - 00;47;04;13
Unknown
And, these guys have been with our community and helping people in our community for over the past year. And I have had members come to me that I'll leave anonymous. Tell me that, dude, these guys are insane. They saved me $30,000. They found a bunch of mistakes. They fixed this in my taxes and to me that means everything.
00;47;04;18 - 00;47;26;14
Unknown
Like, we value people who do what they say they're going to do. We value people who are values, matches. And of course, like I got into business and wanted to become a multi-millionaire so that I didn't have to wear a suit and tie. And Ryan doesn't wear a suit and tie. He's our people. It doesn't mean he doesn't have the skills or he's not a high level CPA.
00;47;26;15 - 00;47;46;09
Unknown
He can do literally anything and mostly better than people with suits and ties, because those people are the ones that are saying, here's why you can't do something, rather than, let's talk about how we can structure it to do it. And that's what I love about tax Group. And the people in our community rave about them just because they're so, they're just so client friendly.
00;47;46;10 - 00;48;05;18
Unknown
Like they genuinely care about making sure you're getting a tailored response and a tailored product for what you need. And we all need something different. We're all at a different place in our business. So, Ryan, I just want to say thanks, man. And I know you guys are going to come out to our tropical mastermind in Cancun with all of our people, and we're excited to have you guys.
00;48;05;23 - 00;48;32;26
Unknown
Yeah. Thank you so much for having us today. And yeah, I'm excited for Cancun. We love having you guys. And we love something isn't for everybody there. If you if you want to beat your chest, talk about your deal, count and be the biggest player in the room and you don't operate with humility and abundance. This aim for you like, I don't want you here and there are other places where you will probably be a better fit.
00;48;32;27 - 00;49;02;01
Unknown
We want people who have a whole life concept care about their family, their faith, their health, their fitness, their business. They're good operators, and they're focused on being an effective operator making an impact in the world. Like those are the people who come into our world. And that's not like a tagline. That's what it is. So, if you're thinking about is this community, you've been listening this podcast, is this like the place I want to be?
00;49;02;02 - 00;49;19;21
Unknown
If you meet that, if you don't meet the description I just said or you meet the first description I said, it's not for you. If you if you meet it, then it's for you. So thanks for tuning in to this episode. Ryan is my CPA. I normally it's uncommon for people to share their personal resources with you like they don't want.
00;49;19;25 - 00;49;39;01
Unknown
If I give you Ryan and Ryan gets a thousand clients, then maybe my service goes down. But that's a fixed mindset that scarcity. Like you guys can use my CPA. I will give you a there'll be a problem. Sure. There'll be a link to advanced tax group in the show notes. You can literally talk to those guys and use the same exact resources I use.
00;49;39;01 - 00;49;59;03
Unknown
There's no gatekeeping. So excited. Another day, another podcast. I appreciate you guys listening and I can't wait to see you on the next one. That was Adam Whitney and Ryan Carson from Advanced Tax Group. If you want to talk with Ryan's team their link is in the show notes. Now here's what I want you to do. Every year I watch people in our community wait until November and December.
00;49;59;04 - 00;50;19;20
Unknown
Look at what they made and scramble for something to write off. Don't be that person this year. Join me live for the Tax Masterclass on Thursday, October 8th at 5 p.m. central. That's one week before the extension deadline, and it's early enough that you can still make real moves for 2026. The registration link is in the show notes and in the YouTube description.
00;50;19;22 - 00;50;20;22
Unknown
Save your seat now.
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