15 years of Collaboration: Heidi and Michael on Building ETS and Saving Clients Millions
Welcome to the Slash Tax Podcast, where we explore strategies to reduce taxes legally and ethically while building long term wealth. And today's episode is really special for me. I'm joined by someone that I've worked alongside for almost fifteen years and someone that I truly consider like a brother, one of the very best in specialty tax, Mike Donofrio. Mike, you so much for being here. Mike has over eighteen years plus of experience in specialty tax specifically and tax consulting.
Speaker 1:And during his career, he's worked with some of the largest real estate developers and investors across the entire country. At Engineered Tax Services, he's also serving as the Chief Product Officer. So he's helping lead not only our, our ETS operations team and client service, but he's really developing and expanding additional service lines to bring more value to clients and CPA firms nationwide. Today, we're going to dive into cost segregation because it's like our bread and butter and what we are the absolute experts in what it is, how it applies to clients and where Mike sees the biggest impact. And then we'll explore how ETS is now expanding into other services, other ways to better support our clients and to be able to support the real estate industry and business owners.
Speaker 1:And so with that, Mike, thank you so much for joining me. This is going to be fun.
Speaker 2:Awesome. Great to be here with you, Heidi. I feel like we're together every day and have been for years, but you know, this is a special discussion.
Speaker 1:Yeah, absolutely. I feel the same. So I felt I was like, oh my gosh, I've got a Mike's calendar. Like we're doing this. Just the two of us.
Speaker 1:We can like dig into what we do every day, but share your expertise. Because again, you're working with some of the, the, the most impressive groups in the country on some really cool projects. Will you talk a little bit about what the last like, what I think how long are you with ETFs now? Eighteen years?
Speaker 2:Yeah. It's going on eighteen years. You know, maybe maybe a couple years, you know, informally before that, you know, when I had met, you know, Julio and some of the team members. But yeah, going on eighteen years, you know, I look at my little boy, who's now 18. And I remember I remember when he was born and man, it's been an amazing journey.
Speaker 1:Isn't it crazy? But time flies. So talk a little bit about your background and what brought you here. Why specialty tax?
Speaker 2:Okay. Well, I grew up in Cleveland, Ohio, you know, grade school, high school, college in Cleveland. And then, you know, right right after, I mean, immediately after college, I moved to South Florida and was working with some big industrial companies and and then transitioned into really private equity groups, you know, where we were doing strategic intermediary, strategic advisory work for buy side and sell side clients. And, you know, many times in those deals, there was substantial, you know, real estate assets involved, you know, might have been manufacturing company or frozen food company that I can remember, or, you know, software and technology. And and and then at the tail end of that, you know, there were some there were some situations that also included some some fairly large energy deals, where we were working on, you know, pipeline related assets and then renewable energy projects with wind and solar and geothermal and microturbines and all these cool things.
Speaker 2:But, you know, that that was also the beginning of some of the energy tax credits back in the day. You know, was looking for a firm that that had some specialty around that, you know, with with the investment tax credits, you know, for the biofuels or for the renewable energy projects or some of the things that we were working on with the clients. And, you know, ETS was such an interesting company. You know, when I met Julio, you know, we were very small team at the time, you know, in in Downtown West Palm Beach. And, you know, I saw an opportunity once I saw what engineered tax was doing at the time was really to focus on being that specialist for that for that type of need, you know, for the transactional need of someone, you know, buying a property or investing in a company or building or developing something was to really have that specialist that not only knew the particulars around the energy tax credits at the time, But then everything else that I learned about that was, you know, very applicable to so many different transactions for clients of all shapes and sizes.
Speaker 2:You know, it's not just the big, you know, private equity groups or investment groups. It's the smaller family, you know, the the investor, you know, that's buying that gas station or the car wash or the oil change or the multifamily property or, you know, whatever it is that, you know, we could deploy over and over again and also be that specialist for the CPA firm and with the CPA firm and with the investor group to help them understand, you know, what was going on, you know, with cost segregation and bonus depreciation or those energy credits, incentives, deductions, whatever. And then other things that we yeah. And then I joined the team, you know, full time, you know, just because I saw that great opportunity to expand that network. You know, so many CPAs kinda knew about some of these things, you know, back in the back in the day.
Speaker 2:You know, they Mhmm. Kinda knew about cost seg. They kinda thought maybe it was only for the larger clients, you know, at the time. You remember hearing like, well, you know, if it's not a five or ten million dollar property, you know, it kinda doesn't make sense. But we were really able to distill that deliverable down to exactly what the client needed for different size and type properties.
Speaker 2:And then also, you know, layer in comprehensively, you know, those those energy credits. We're doing the research and development tax credits. So I really love the opportunity to be that comprehensive, you know, specialist, you know, that understood the tax code, the federal, the state, the local incentives, credits, rebates, whatever, you know, even down to the local utility level and the municipality of what what's what's the special sauce or the missing, you know, ingredients that we could deploy into that deal for the clients, you know, to mitigate tax, preserve wealth and, you know, help them generate more income.
Speaker 1:I that's like so perfectly articulated because it is like truly the epitome of what ETFs has become and what we've
Speaker 2:I've done it a few times in my career, but Yeah. But I don't even think about it. And it's not hard to conceptualize what we do because we do it so often for for so many different clients. Yeah. You know?
Speaker 2:And and it's still a missing need, you know, out there, you know, for the CPAs and and for so many, you know, of our of our partners that we work with.
Speaker 1:Yep. Well, and you've worked with some huge companies, you've worked with some big investors, big family offices, giant projects. But one thing that's interesting is I think there's a lot to learn from those experiences and how you can bring those to a broader client base and help that be more applicable. Can you, can you provide an example, like an experience you've had where you've seen some of this deployed on these huge projects, you know, that are applied at the, the, you know, the top levels? How how are you helping bring that down to that broader client base and helping people benefit from these incentives?
Speaker 2:Good. Good question. Because at the end of the day, the what we do in the deliverable for us is the same, you know, the numbers might be drastically different, you know, and and the and the client's level of expertise and familiarity with certain types of the, you know, specialty tax and engineering things that we do, you know, but at a very high level, you know, and maybe more, you know, visible type of project level, I mean, you know, we've done some things, and I'm trying to be careful with confidentiality because we're always careful with that. But we've we've done things for a lot of NFL stadiums, you know, across the country, you know, for the my hometown of the, you know, Cleveland Browns and the Denver Broncos and the Miami Dolphins. And I personally led some of those engagements plus the Superdome in New Orleans.
Speaker 2:You know, I did an energy study on that building. I did the Bridgestone Arena in Nashville. I'm sure you've been there to see some concerts and and and stuff. Yep. And and and oh, the and the and the Raiders new training facility a couple years ago when they built that.
Speaker 2:You know? But that's just visible examples that I've used with clients. Because it's the family, it's the investor groups, it's the sometimes the cities and the municipalities that are involved in those projects, they all want the same thing. They're trying to figure out, hey, what's available at the federal, state, and local level? What can we deploy, you know, into those projects, you know, not only to help with the tax benefits or savings, but, you know, is there a renewable energy aspect to it that we can help with, you know, sustainability or energy efficiency or whatever.
Speaker 2:You know, we were working on all different types of things on those projects. You know, and those are just sports stadium and, you know, cool recreation type projects, but but all the multifamily properties that we've done over the years, you know, and these aren't little ones, you know, they're two, three, four, five hundred unit, you know, mixed use multifamily buildings in in Miami, in Chicago, in LA, and, you know, Las Vegas, and and other places where, you know, we we go down the street. We're like, wow. You know, that we worked on that project, you know, for that month. Yeah.
Speaker 2:So so those big examples, you know, those those big, you know, visibility type projects also gives our, you know, other level of clients, you know, the the confidence that that we know what we're doing. I mean, obviously, we can do a single family, you know, three bedroom, two bath house. And and that, you know, $2.03, $4,500,000 investment for that client on that type of property is just as important as the $2.03, $400,000,000 project, you know, that I that I was just referencing. Because that that tax benefit for that family or that small investor group or that client that owns the, you know, the the retail business, you know, in the small town, you know, that it it's the same thing. We give it the same passion.
Speaker 2:We give it the same level of expertise. And that's what's that's what's so cool about our client base.
Speaker 1:Well, it's it's cool because sometimes those small projects and normal, what I call normal people, small investors, people like yours, yourself and myself and our friends, sometimes it's more impactful when you know that this is a direct savings for a family, for just regular people. And that's, it's a compelling amount of money. And yes, we can do a billion dollar project or hundreds of millions of dollars in, in benefits and tax savings. And, it doesn't necessarily have such a profound impact as it does on just some of these regular investments. So let's start with the basics.
Speaker 1:I would love for you to provide since you've been doing this forever. I think you can articulate it as good as anybody out there. Define what how can you simplify and explain what is cost segregation?
Speaker 2:Okay. The way that I define cost segregation, you know, literally just off the top of my head holding the baseball is it's it's separating separating, segregating a building down into its components, you know, for for tax and depreciation purposes. I explain it to clients every day that similar to an appraisal, you know, because most real estate folks are familiar with appraisals. You know, you hire someone and they visit the property and they do an analysis. So we're doing a study that's very similar to me like an appraisal, but we're not doing it for valuation purposes.
Speaker 2:We're doing it for asset identification purposes. I wanna identify all the different pieces, parts of that building, inside and outside the building. You know, the flooring, the cabinets, the countertops, the lighting, the electrical, the mechanical, you know, the roof, the walls, the windows, the the outside, the landscaping, you know, the the the fences, does it have a pool or not have a pool? But the reason we're identifying all those things is to put them into all of its proper asset classifications for tax. And then the CPAs will be able to see in our in our final cost segregation or component, you know, we're we're identifying all the different, you know, different assets of that that building.
Speaker 2:What's the five year property? What's the seven year property? What's the fifteen year property? What's twenty seven and a half year if it's residential or thirty nine years if it's commercial? So that report identifies all the assets.
Speaker 2:It identifies which parts of that qualifies for bonus depreciation. And here we are back to a 100% bonus depreciation again. Right? With the Yeah. I I call it the big beautiful bonus depreciation tax bill.
Speaker 2:So that's what a cost segregation study is. I mean, I also explain it, you know, like your personal tax return. Right? You can you can take the lump sum deduction, or you can take the itemized deduction on your tax return. So rather than taking the lump sum deduction, you know, lumping together the building and the land and the improvements on that depreciation schedule, we're taking an itemized approach.
Speaker 2:Yes, we're taking land and building, but underneath building, it's gonna have all those different components. We're gonna be able to see what qualifies for bonus depreciation back to a 100%, which is great. Again, it doesn't mean you can take a 100% write off on the whole building. It means you can take a 100% write off on the assets that qualify, you know, anything underneath twenty years, you know, the five, the seven, the fifteen year assets. And that's that's what we do.
Speaker 2:That's how we do it. Like an appraisal, you know, we professionally visit the property. We take pictures and notes, and our engineers do the work to identify all the assets, assemble it into, you know, an engineering based report. And within a couple weeks, we're done. You know, the clients have what they need.
Speaker 2:The CPA has what they need. The IRS has what they need to, you know, be able to substantiate, you know, the the the tax write offs. That's what we need.
Speaker 1:Where do you see the biggest impact with cost segregation in terms of property type?
Speaker 2:Oh, man. That's a question I get every day. Right? Especially
Speaker 1:I know.
Speaker 2:Especially especially this especially this time of year, you know, as as we're getting as we're getting in towards, you know, you know, towards the fourth quarter. Right? Not not in football, but you gotta do it before the end of the year. So clients are calling me, hey. You know, what's the best property types to look at for bonus depreciation?
Speaker 2:And the first thing I tell them, they're all good. You know? Even even warehouses and single family, multifamily, retail, you know, those those can be great. Right? That those are probably gonna get, you know, 30% of the of the building basis that qualifies for bonus depreciation, know?
Speaker 2:And then there's the next level of properties. There's the there's the there's the self storage properties. There's the RV parks. There's the, you know, mobile home parks, you know, that might be, you know, thirty, forty, fifty, sixty, 70% of the asset, you know, depending on the property. But then there's the I call it the big three.
Speaker 2:Right? Gas stations, car washes, and oil changes. Those are definitely the strongest because if the properties qualify, you know, there's a couple different reasons why, because of the amount of the equipment or the because of the the amount of petroleum sales and and revenue. Gas stations and car washes and oil changes are definitely the highest. You know, we can write off, you know, typically almost all of the building, not not including the land.
Speaker 2:So, you know, if you got a million dollar purchase taken out, you know, 20% for the land, that's a $800,000 immediate tax write off on those those big three property types. So that's that's that's huge as some would say.
Speaker 1:Exactly. I know. And it's so incredible to watch like the industry shift and start to see demand for these types of properties that are great investments. I mean, a lot of times they have a pretty decent cap rate, but then you factor in the tax benefits. I was chatting with an investor yesterday and he was like, wait a second.
Speaker 1:So essentially the government's buying me a building. And I'm like, well, when you look at the down payment, you know, if you're in the proper tax category or bracket, which leads me to my next question that as far as the impact of cost segregation, what is the best client profile that you typically see for utilizing this?
Speaker 2:So the best client profile, for sure, would be someone that's already within, you know, the real estate business. You know, they're already active real estate professional for tax, you know, either they're involved in short or long term rentals or multifamily, you know, or whatever their property type is. But if they're already an active real estate professional for tax, you know, meaning they meet the, you know, the the material participation and the, you know, the the activity time requirements, Those are the absolute best clients, I think, because they're already doing it, they can already utilize, you know, all of the depreciation. They might be selling properties where they need, you know, additional bonus depreciation to offset cap gains or, you know, or other reasons. So those are the best, know, for sure the best property types.
Speaker 2:I mean, the property clients, they're already active in the real estate business.
Speaker 1:Yeah. What other well, talk a little bit more about material participation. I mean, you know, this again is something that is confusing. I also try not to dive into it too, too granularly because it gets complex. What are your comments or directions, I guess, for clients who are trying to understand if they can benefit from investing in a project or a property type like this, benefiting from bonus depreciation using the tax benefits?
Speaker 1:What are some of the and and let's assume they're not already in real estate. What are some of the points that you'll make or or, I guess, advice that you might give someone?
Speaker 2:So my advice is always definitely understand the tax law. Right? You know, the IRS publish publishes all this information. You know, you don't I mean, you can use our our website. You know, we've outlined some things on in terms of, you know, what is, you know, material participation, what's real estate, you know, you know, professional status, rep status.
Speaker 2:You know, understand that, you know, because there's some very specific requirements, you know, you and I get phone calls every day from folks that are like, I'm I'm going to take my real estate, you know, license test. And that that means I'm a real estate professional so that I can use all the tax benefits against my, you know, w two wages or whatever the situation is. And, you know, I always caution them. Like, no. You know, just because you're, you know, taking your real estate test or your real estate broker doesn't necessarily mean you're actively participating in the operation and management of that particular asset.
Speaker 2:In fact, I caution them that them having their real estate license is is a great tool for the IRS to audit them and say, how how many other properties are you working on that aren't your properties? And they're like, oh, I never thought about it that way. So so so definitely understand the tax law. You know, we can provide you with, you know, very specific, you know, guidelines, you know, from the IRS. And it all comes down to being active, you know, active operation, active management of your specific assets, you know, that you're you're, you know, you're you're you're claiming that status, and you're taking that that benefit on.
Speaker 2:I mean, that's how it works. You know? And I I caution folks not not to try to get around it, you know, because, you know, the IRS is watching, you know, these types of activities, you know, especially when you're talking about, you know, those types of assets where you might be buying, you know, a gas station or or a car wash or oil change where it has, you know, millions of dollars of of immediate bonus depreciation. And, you know, I I talked to a a husband and a wife yesterday, and they were telling me about some properties that they were looking to buy. And, you know, the husband has a w two income, and the and the wife, you know, has a w two income, but was considering, well, you know, I can I can do this on the side, and I think we can meet the, you know, material participation?
Speaker 2:And I'm like, I said, I don't I don't see it. You know, I I don't know how you're gonna do it. I suggest you talk with your CPA. And she says, well, you know, what if we keep track of our hours? And then we started talking about the short term rental loophole.
Speaker 2:I would drop down, you know, from seven hundred and fifty to a hundred hours. And I said, look. Understand understand the rules. And if you're gonna do it, do it right. You know?
Speaker 2:And then number three, document it. Documentation. You know, have a log. Have an activity log, you know, and it's not investment related activities. Know, You that's the first thing the IRS will say.
Speaker 2:It's not investment related activities, meaning researching properties, looking for properties, you know, looking for investment opportunities. It's it's active, you know, ownership, you know, management and maintenance of those properties.
Speaker 1:Yep. Yep. Absolutely. Yeah. I love that advice.
Speaker 1:I agree. I mean, I, it is complex. It's part of being a real estate investor is understanding some of those rules and understanding the parameters and those boundaries of where to operate. And also again, how to document and track that. I couldn't agree with you more.
Speaker 1:Shifting a little bit to kind of broadening now and looking at your role as chief product officer, you're leading that development for ETS. So beyond cost seg, what are some new services or expansions that have been rolling out to help better serve clients that's really been part of what we're doing here at ETS?
Speaker 2:The thing that I think about every day is how else can we help clients? You know, we've done a great job, you know, going on twenty, twenty five years of, you know, doing those cost seg studies, doing the energy studies, doing the research and development tax credit studies. But, you know, then then sometimes the clients will come back to us and they'll say, you know, how else can you help me? May maybe I didn't buy a building this year, you know, or I didn't invest in, you know, a property this year, or I don't meet the, you know, real estate professional status for, you know, for tax purposes. So, you know, what other things should I be thinking about?
Speaker 2:And and what other ways can we be helping the client in that transaction, you know, as comprehensively as possible? You know, because if they're if they're buying and building and renovating real estate, they're probably gonna have an insurance need. Right? So, you know, one one one of the the first new businesses and and product lines thank you to your help as as well. You know, we do we we spun out and started, you know, engineered insurance services.
Speaker 2:You know, so we have engineered tax services, engineered insurance. You know, tax was the first and foremost problem that we we look to take care of for clients and mitigate that where possible. But everybody needs insurance on their properties, on their companies, you know, plus the E and O and D and O and the cyber liability and the, you know, every other aspect of insurance. So utilizing already the details that we have in our cost segregation studies, again, we're collecting a lot of great information on those buildings. We know where they are.
Speaker 2:We know what they're used for. We know what the cost is of them. We know what kind of roof they have. We know how many tenants they have. That's the type of detail that the insurance carriers want to have on those properties as well.
Speaker 2:So we we merged in an existing, you know, very experienced in insurance team based out of Cleveland, Ohio. Go figure where where I'm from. So we had some good relationships. And we hit the we hit the ground running very quickly last year to also be able to provide those insurance, you know, agency services for all property types, you know, that we work on, you know, from the single family investment properties to the, you know, office properties, multifamily, industrial, data centers, you name it. Doesn't matter what kind of property or company type, we can handle that.
Speaker 2:So that was one of the new products and companies and strategies that I worked on. Know? And then the, you know, kind of the second thing was in the transaction is I I think about the sale. You know, we do cost seg studies, you know, on the purchase or the new construction or the renovation. But what happens when they go to sell that property?
Speaker 2:Mhmm. And we need to think about tax mitigation. Right? So what's what's the first thing that they always ask about? Ten thirty one exchanges.
Speaker 2:So, you know, we we we we work to be able to also be the, you know, provider as the exchange intermediary, you know, in a market disrupting model where we actually don't charge fees, you know, for that type of service and get really transparent on the money that could be made on the on the carry, you know, on the money that's sitting there for thirty, sixty, ninety, a hundred and eighty days. So that was the that that was the second service line, new product, you know, that I worked on. And then enhancing some other things that we have been doing that a lot of clients just aren't aware of. You know, others tax savvy type investments with jets and aviation. You know, sometimes the owner of a of a company or a firm or a high net worth family or a crypto investor is like, hey.
Speaker 2:I heard about jets. You know, you can invest in a jet, and you get a tax deduction. And but then lo and behold, a 100% bonus depreciation came back, you know, in 2025 on July 4. So that brought all of those other strategies right back to the forefront. So, you know, we have a engineered aviation program where we can help clients through that complete, you know, sourcing, you know, identifying the asset, structuring it, making sure they understand, you know, the the the the charter or the income opportunities.
Speaker 2:Also the expense side of aviation because it can get quite expensive. But if done right, could be need to have one, could be need to use one, and definitely has a great tax benefit. Yep. But but then jet is just a piece of equipment. Right?
Speaker 2:Equipment gets a 100% bonus depreciation. So we also have an equipment program where clients can invest in other types of equipment that might not be that are definitely not as expensive as a jet. You know, for for as little as, you know, a $100,000, you can be buying other types of equipment that also qualifies for a 100% bonus, that also has that is generating nice revenue, you know. So not only is it a nice tax deferral, you know, it's it's an income generator as well. Mhmm.
Speaker 2:Know, to
Speaker 1:your Talk book little bit more about the equipment option because this is a little bit of a business model that's really interesting, and and we've certainly had some clients who are pretty fascinated by this opportunity. So it's a bit of an investment strategy in terms of equipment. Talk a little bit more about what that looks like.
Speaker 2:Sure. So a lot of folks don't realize that, you know, a lot of the equipment that might be sitting behind, you know, a lot of the brand name locations that they would know, you know, the the Sunbelt Rentals, the United Rentals, the Herc Rentals, the, you know, others, they might not even own all that equipment. You know, it's sorta like if you if I go to my Ford dealership or or you probably go to your Dodge Dodge dealership.
Speaker 1:That's right.
Speaker 2:You know, it's it's it's almost like financing a a floor plan of vehicles that are that are sitting there. So another business, you know, tax savvy investment opportunity is is investing in some of that equipment that goes on to the revenue share program of some of these big billion dollar, you know, equipment companies. And, you know, debt is available on these properties, you know. So easy math is $150,000 will get you about a million dollar worth of equipment because you can get 90% debt, which is, you know, rare. You know, good luck going to buy a gas station or car wash or other business and get 90% debt on your on your on your real estate asset.
Speaker 2:And you're getting a and you're getting a 100% bonus depreciation on the full million dollars of equipment. And when I say equipment, you know, I'm talking about smaller yellow and white iron steel type of equipment. Right? So scissor lifts, aerial telehandlers, track hose, you know, bobcats, you know, that that that type of construction equipment. So every one of our real estate clients, every one of our construction clients, like, they immediately know what I'm talking about.
Speaker 2:They're like, oh, we have that stuff at every job that we're working on. Yep. They're like, I didn't know that I can invest in that kind of thing, and I didn't know that it gets a 100% bonus depreciation. Or they'll actually say, oh, I did know that, but I forgot about it because Yeah. You know, they've heard about, you know, the the SUV loophole.
Speaker 2:Right? Like, yeah, heard about I heard about going to buy that g wagon, you know, from that guy on Instagram. And I'm like, well, it's the same thing, but I don't want to buy a G wagon. I want to buy an equipment that's going to generate me revenue.
Speaker 1:Right. Yeah. Cause that's the biggest difference. It's like, okay, fine. I can, I can, I can go buy a work truck or I can go buy a piece of equipment for my job site, but that's not going to make you any money per se?
Speaker 1:That's usually a depreciating asset that's going down in value as we use it up. But the difference with what you're talking about is that essentially you're investing in equipment that goes into a rental pool, which is then the goal is to actually generate income and revenue from those assets. So that is what's really fascinating about this concept is it's a group really that's able to structure these in a way where this is their expertise. They have the ability to put these equipment, all of the equipment into these rental pools with big name brands and, and actually generate revenue off of these. So it is a legitimate business structure.
Speaker 1:Right?
Speaker 2:Yeah. It's it's absolutely. I mean, you're essentially creating your own equipment finance company is is what you're doing. Because you're because you're not running the equipment, someone else is, but you're creating equipment finance company. And it's a lot of other types of equipment, you know, that I'm helping them bring on to their platform that that people don't think about, but they they know about.
Speaker 2:You know, so we talked about the construction type of equipment. But what about all the stuff in data centers? Right? All the racking, all the servers, all the you know, anything that's tied to anything that the first is a is a solidly per the tax law depreciable asset, and is tied to a revenue generating income stream, you know, over a longer period of time is are things that we look at for this program, you know. So definitely construction related equipment, you know, data center racking, servers, dump trucks, and and, you know, roll off dumpsters.
Speaker 2:I mean, every single, you know, hotel or you know, you see the big blue dumpster that's there. Yep. That that that's a piece of equipment. And I actually like dumpsters because they last for a very long time and they don't deteriorate.
Speaker 1:Yeah, right, right. Amazing. So what other opportunities or strategies are you seeing out there that clients are asking about and you're seeing have some benefits?
Speaker 2:Yeah, there's and you and I are gonna do a deep dive on some of these other ones here shortly. But, you know, just to kind of give some high level, you know, we work with, you know, clean energy financing, you know, C PACE is another thing, you know, depending on the state, depending on the project, you know, there there's a way to get specialty financing for your energy efficiency assets in a property, you know, so lighting, HVAC, roofs, windows, you know, a lot of pieces, parts of of of new construction and of major renovation projects, we can help finance, you know, through a c paced program. So that's one thing, you know, we're also looking at opportunity zone projects. You know, we're kind of right in the straddle season of, you know, the end of of the original opportunity zone program that started in 2017 and is going through to 2026. The current administration has signaled that there's gonna be a refresh of of the opportunity zone project, you know, restarting in '26 with reidentified opportunity zone, you know, geographic locations.
Speaker 2:So that would be pretty exciting. So we're we're thinking about opportunity zones. We're thinking about solar and renewable energy. Mhmm. The other tax credits out there, you know, for for solar and other renewable energy projects.
Speaker 2:Man, we we we're doing some things around valuation and and and structuring, you know, some of the things that you and I work on in terms of, you know, proactive tax planning with with clients, you know, before you before you get to the end of the year, before you sell the company, before you buy this company, before you buy the real estate, before you sell the real estate, whatever the situation is
Speaker 1:Mhmm.
Speaker 2:Get with us get with us proactively. You know? I'm not saying that your CPAs are not good, but but we are great at being proactive, you know, and and and helping them, you know, to take some of the workload off the plate, you know, to you know, with advanced tax planning of you know, before, you know, before the before the thing happens. Right? Because once you call me in January 2026, and you say, wow.
Speaker 2:I had a really good year in '25, and I owe all this tax. The first thing I'm gonna say is I wish you would have called me in September or October 2025. Because there's a lot more that we could have done, you know, with Yep. Equipment or a jet or a ten thirty one exchange or buying another, you know, real estate asset, which could could be but that's, you know, there there's probably five, ten, 15 other things, you know, when I put my I take my engineered tax hat off and I put my engineered advisory hat on, where we're we're really working, you know, proactively, entrepreneurially, and transparently with that client to identify other other things that they could invest in, that they could structure differently, that they could plan, you know, before the end of the year or before the transaction happens. You know, those are some of the other things that we're doing.
Speaker 1:Yeah. I mean, it's it's amazing because, it really is so it it's come very full circle for us in terms of the tools, the technology, the implement the implementation that we've pulled in, looking at first off, starting with tax credits, incentives, then moving over into grants and other funding opportunities, and then shifting into alternative investments. Really just looking at strategy strategically, what are the opportunities? And how does it all come together? Typically, other than the insurance side, typically it all comes together based on really looking at optimizing tax, which is in most people's situation, the largest expense.
Speaker 1:If there's an opportunity to choose how to invest those dollars, we can choose to allow the IRS to invest those into infrastructure or however they use our money, or we can choose to invest those into our own investments, which the IRS actually allows you that choice. I think that's what most people don't realize and is so profound. So we haven't talked about R and D credits, which I think, you know, we'd be remiss to not just mention that since that's also been a significant change in the one big, beautiful bonus bill. I like that you added an extra B. So talk a little bit about R and D as well, which is a credit for business owners and has has been a pretty big change we just experienced.
Speaker 2:Yeah. Maybe we should call it the one big beautiful bonus depreciation and immediate expensing tax bill. Because then because because then we're talking about research and development tax credits. It's not just bonus depreciation. It's immediate expensing.
Speaker 2:And what, you know, what what they're referring to there in the tax code was really research and development tax credits. Yeah. Because, you know, there was a, you know, there was, you know, that period of time, you know, where where where certain research expenses were supposed to be amortized over over a five year period, rather than immediately expensing those, you know, along with getting the tax credit, you know, that kind of ended and was kind of forgotten about in the tax code, maybe by mistake, you know, I'm I'm not sure. But the good thing is that the Trump administration, within the tax bill in July, they changed the tax code back to how it was before. So not only for research and development tax credits do you get the tax credit, you can also immediately expense those research expenses.
Speaker 2:So it's almost a bit of a double dip, which is great. You can you can go back to expenses, expensing the qualified, you know, wages and third party, you know, you know, third party costs and materials and supplies, know, whatever your QRE is, right, qualified research expenses along, you know, that with the tied to the, you know, QRA, the qualified research activities. So I I love research and development tax credits. That's honestly one of my favorite things that we do. And the reason is is we get to learn so much about our our our clients, you know, and what they're doing, you know, what are they working on?
Speaker 2:I mean, obviously, we keep that stuff very confidential, but it's all tied to research and development tax credits are specifically for US job growth, US innovation, US security, helping companies to thrive and incentivizing them to spend money on the innovation of that product or the process or the technology or whatever the thing is. But that's why it's my favorite.
Speaker 1:Yep. I'm with you. I mean, we do so much with real estate. I love real estate. My old career has been in real estate.
Speaker 1:I think a lot of yours has been as well. But to your point, when we're dealing with clients who can claim the R and D credit, it gets really fun for us because we're dealing with inventors. We're dealing with people who are building really cool things and patenting new products. It's the creative inventors of our country. It is always amazing to be able to talk with these companies and hear about what they're doing and what they're building and investing in.
Speaker 1:I'm, really, really cool. So I'm with you. I love those.
Speaker 2:And boring even some of companies that you're like, oh, I didn't realize that qualified for research and dev I mean, there's a company, I won't say the name, that's in Sarasota, Florida that makes, you know, certain types of cups that we use all the time, you know, certain types of tumblers that we use all the time. And I was like, I didn't even think about it at the time. But, know, their their injection molding process and their, you know, their their their quality control and the review that they do and the next generation of their products and the all those things. I'm like, wow. I didn't think about you know, of course, it's the biotech and the technology and the software and the, you know, the cool defense product and the heads up display and augmented reality stuff like, yeah, of course, it's that stuff.
Speaker 2:But don't forget about the cups or the fence. You know, I did a I did a research and development company study for a fence company. It's not just so the wood fence or the PVC fence. It it was the their manufacturing process and the the efficiency of the process flow and the, you know, the computer aided design and the the thing, you know, so that's the cool thing is as I look around, as I meet with clients, I keep thinking every day, that's there there's some research and development activity right there.
Speaker 1:Exactly. Now there you're you're exactly right. I mean, it is some of the basic things that we don't think about every day that are just iterations and, product improvements every day. So here's a question. I mean, you and I are a little bit biased obviously, because we have been ingrained with engineered tech services for so long.
Speaker 1:I think it's what we love. It's what we're passionate about, but we also deal with competition. You know, I've said this many times, and I don't know if I've said it on my podcast, but, what is it? Imitation is the finest form of flattery. And that is one thing that we see across the board is a lot of imitation and a lot of new firms popping up, and it does create a lot of competition, which is not necessarily a bad thing.
Speaker 1:Are you, what would you say to consumers in terms of why ETS? What, what is the differentiator that ultimately defines who this company is and what we're what we're doing?
Speaker 2:Well, great question. And I had that exact question yesterday that I distinctly remember, you know, as I was driving from one meeting to another, and I was talking to this this very nice lady, and and she she almost apologized when she asked it, but she said, you know, you came highly recommended from my CPA firm. And, you know but I really wanna know, you know, before I call, you know, two other firms, what what makes you different? You know? Because she didn't understand cost segregation, you know, was something that was that was mentioned to her by her CPA.
Speaker 2:And she's like, I I I just need to know, like, how do I compare the firms? And I told her I really respect that question, especially for someone that didn't understand the industry, you know, because a lot of folks don't understand the industry and the differences in the studies. But what I told her, what makes us different? I said, first of all, you know, we've been doing this going on twenty five years. We've been doing it originally specifically for CPA firms, you know, small, medium, and very large CPA firms all across the country.
Speaker 2:We've worked very hard with a very consistent team, me, you, Julio, Heidi, you know, ten, fifteen, twenty other people that I could name off that have been here for fifteen, seventeen, eighteen years working together, you know, building innovative products, doing it right, you know, doing it professionally, but also doing it efficiently, you know, cutting costs, you know, things that used to, you know, studies that used to cost, you know, $10.15, $20,000 years ago. You know, we can do these studies for, you know, $3.04, $5,000 for the small stuff and, you know, $5.06, 7,008 thousand dollars for the big, complicated stuff. So I I tell them it's it's our history. It's our professionalism. You know, it's it's our longevity as a team.
Speaker 2:It's the technology, you know, that that we deploy into what we do, you know, everything from our client portal to sort to our security protocols to the efficiency of our teammates. And and that's how we're able to do you know, like, started our discussion, everything from the half $1,000,000,000 sports stadium to the couple $100,000 investment property, but give it the same level, you know, of of of of detail, the, you know, the same level of our whole team, you know, from our business development team to our, you know, accounting team to our our tax team delivering the tax deliverables with our CPA. I'm gonna get a drink so I don't choke myself. It's it's our integrated team. You know, I'm very proud of that.
Speaker 2:I'm proud of what we do. I need another drink. I mean, I just really like the, you know, the the consistency of our team, of our deliverable, our professionalism, and we do it right. You know, sometimes we we take the extra, you know, we take the extra step to visit that property. You know, there are some times during COVID, you know, and and some other times where, you know, we had the opportunity where where maybe we couldn't visit that property in person, you know, for whatever reason.
Speaker 2:But we quickly went back. And even during that time to wherever possible, you know, like to visit the property in person, you know, by our by our team. We take the time to take the pictures, the notes, not only to maximize the results for the client, but to but to reduce their risks, you know, with the IRS, you know, because I always remind that client and the CPA, I I say, you know, it's your CPA that's signing on that tax return. You know, it's not me. It's, you know, it's it's the CPA.
Speaker 2:So I wanna make sure that they have the confidence in us. And, you know, all those things together, you know, is what makes us different. You know, our team, our our our technology, our professionalism, understanding the tax law. You know, there's a lot of new firms that have popped up, you know, in the last few months, last couple years that, you know, I don't even know if they really exist. I I don't even know where some of these companies are located.
Speaker 2:Actually, I have I have talked with some of them, and and we're actually doing the work now for them behind the scenes, and they're great marketers. But, you know, it's it's just amazing how much our our business has expanded and and that's why we will continue to win business.
Speaker 1:Yep. Absolutely. I love that. So as a final question, what would be the one piece of advice? And this is this is kinda twofold, so there may be two answers.
Speaker 1:But what would be one piece of advice for a CPA or for an investor listening today, about maximizing tax incentives?
Speaker 2:So real really same answer for a CPA, same answer for an investor, a company owner, a real estate broker, investment sales professional. First, I mean, it's it's in my slide deck that I present to them, like, I said the first thing is understand the basics of the tax code. You know, take the time to talk and to meet with me or you or some of the other folks on on our team to understand the basics of what you can do and how it applies in certain situations. You know, the cost seg, the energy studies, the r and d studies, the specialty tax and advisory and tax savvy investment things that they can do, the structuring. Understand the basics.
Speaker 2:Connect with us. But build let's build a relationship. Let's build the trust together so that when you have a situation that comes up, you know who to reach out to. You know who a teammate, you know, on their team could reach out to. And then you just have to be proactive.
Speaker 2:You know, you can't you can't just you can't get to us a year later, you know, or two years later. Mhmm. You know, so so so meet us, understand what we do. Let's build a relationship together. Let's build that trust.
Speaker 2:We'll teach you, you know, the things that we've been doing for years. And, you know, I'm I'm I'm very confident we'll we'll be able to do great things together.
Speaker 1:Yep. I, I couldn't agree with you more. Timing is everything. And, you've summarized it beautifully in terms of the products that we're bringing to the table that engineered tech services is expanding on, and really the differentiators with, with ETS. What's the best way for people to reach out and connect with you if they have questions and wanna learn more?
Speaker 2:Well, you can find me on the ETS website. Right? You'll you'll find me on the team section. You'll be able to contact me through there. You can find me on LinkedIn, you know, Mike Donofrio.
Speaker 2:I'm sure you folks will find us on Instagram or other places. But, you know, send me an email, you know, send me a phone call, send me a text. We have an amazing team, you know, and sometimes if it's not just me on our team, you know, we we have an amazing, you know, group of folks all all over the country. You know? But definitely, if you're in Charlotte, North Carolina, you know, where where my home is, you know, stop by and say hi.
Speaker 2:We'll have, you know, beer or sweet tea or or something. We're in Palm Beach, Florida. I go back and forth between in Charlotte and Palm Beach all the time. But, you know, my my my my direct number's published out there. It's on LinkedIn.
Speaker 2:My ETS email is m donofrioengineeredtaxservices dot com.
Speaker 1:Perfect. Well, Mike, thank you so much for joining me today and for sharing all of your expertise. I don't think that there's anybody in this in the in the industry as well versed and experienced in this space as you are. Past segregation has changed the game for thousands of real estate investors, and I know that our listeners will walk away with a clearer understanding of how that applies for them and some of those strategies. For those of you tuning in, if you'd like to learn more about these strategies in tax incentives, check out the links in the show notes, and you can go to the engineeredtaxservices.com website.
Speaker 1:We've been doing this for over twenty five years. We're here to help you capture every tax saving opportunity that you're entitled to. If you've enjoyed today's episode, please subscribe to the SlashTax Podcast. Leave us a review and please share it with someone who can benefit from smarter tax planning. This is Heidi Henderson, and I'll see you next time.