Tax Strategies that Save $50k-$200K+ | Keystone CPA, Inc.
Welcome back to the SlashTax Podcast where we uncover strategies, incentives, and tax advantage investments that help you legally reduce your tax bill and build long term wealth. I'm your host, Heidi Henderson. I've spent over twenty years in tax consulting, helping real estate investors, business owners, and high income earners take control of their finances, unlock hidden opportunities in the tax code, and keep more of what they earn. And let's be honest. Taxes are one of the biggest frustrations for anyone trying to build wealth.
Speaker 1:Most people overpay simply because they don't know what's available to them or they're getting reactive advice after the year's already over. That's really why I started this podcast, to bring clarity, credible expertise, and real strategies that you can apply, not just theories, but proven powerful tools for tax reduction. And today, I'm so excited. I have two guests who embody exactly that proactive mindset. Amanda Hahn and Matt McFarland, they are the founders of Keystone CPA.
Speaker 1:Amanda and Matt are some of the most trusted names in real estate tax strategy. They have built an incredible practice focused on helping investors and entrepreneurs take control of their tax lives. They are authors. They're educators and speakers. They've been featured on BiggerPockets, NBC News, and countless other platforms, and their insights have helped thousands of investors build smarter portfolios and more sustainable wealth.
Speaker 1:I have worked with Amanda over the years, and I've seen firsthand the difference that her strategies can make not just for my clients, but for anyone that's interested and ready to move forward from surviving tax season to really strategic tax planning. So if you're ready to stop guessing and start planning and to learn what proactive year round tax strategy truly looks like, this episode will be awesome for you. So with that, I can't believe I get both of you guys, Amanda and Matt. Thank you so much for being here today.
Speaker 2:Yeah. So excited to be here. We're a buy one, get one free package.
Speaker 1:Yes. That, I mean, that might be the
Speaker 3:best Thank you for letting me ride her coattails.
Speaker 1:Oh, whatever. It's an amazing partnership you guys have built and I can't wait to dive into this. I am constantly asked by clients, you know, where, who, who can they work with? Who can they reach out to? Where are their resources that they can rely on?
Speaker 1:You guys are one of the top resources that, that I've been aware of and come in contact with. I mean, it's been years now. And you guys have just continued to build a really incredible firm, and in a brand, and you've done an incredible job with branding as well for Keystone CPA and for your platforms. So let's start back. How did this whole journey begin?
Speaker 1:What inspired you guys to focus on real estate investors as your niche and then building this firm the way you have?
Speaker 2:Oh my gosh. Well, I'm actually the third generation of real estate investors in my family. So my grandparents, invested in real estate when they first immigrated to The U S then my parents dabbled in real estate and I actually grew up in the same condo community, where my grandparents were the landlords they were super hands on. Yeah. So growing up, I was like, I never want to be a landlord because, you know, it seemed like it was like a lot of work, to deal with tenants, especially can you imagine like living in the same condo community as where your tenants are.
Speaker 2:Right. So that's a whole different, story in itself.
Speaker 1:Yeah.
Speaker 2:Yeah. So yeah, it's just not something I wanted to do. I wanted to get an office job and, I wanted to become an accountant, but it just so happened that once I became a CPA and worked at one of the big four accounting firms, I ended up in the real estate specialty group.
Speaker 1:So it was
Speaker 2:sort of by chance how I fell into real estate taxes.
Speaker 3:Yeah. And that, and that's actually where we met. So, you know, shocking news is some people listening. We aren't married to each other just before this conversation gets awkward. Right?
Speaker 3:But but we we met at a big four firm, and I was working in their private client adviser group. And, you know, obviously, a lot of wealthy individuals have real estate. And so I think kind of my moment as I call it was I was probably two or three years in. I was a senior. I was reviewing somebody's tax return.
Speaker 3:This gentleman was probably in his sixties at a bad point in time. I'm green and 25 years old. And it was clear that this person who was retired and all he had was real estate was making over 6 figures a year in cash flow, but not paying any taxes on it. And that's kinda when the light bulb went off. Like, hey, there's something here.
Speaker 3:And so started kind of trying to work more with real estate clients versus, you know, kind of fortune 500 huge companies, and, you know, the mom and pop small businesses and things like that. And so that's what we like doing. And so when we started our firm, it was a natural transition to, hey, we like real estate, we understand it. This is what we want to do and who we want to work with.
Speaker 1:You know what? It's so cool that you guys have focused on that. People will ask us a lot with with our business and when we work with this really broad spectrum of clients, I mean, we've got those mom and pop businesses and and people working to buy their first short term rental property, but we also work with a lot of family office groups. We're working on NFL stadiums and and massive billion dollar projects, which are so cool. It really is interesting because sometimes the most rewarding relationships and the clients that we work with are those people we are helping with in a tangible way in a very real, at a real level.
Speaker 1:Sometimes those huge organizations, there's so much money and there's so many people involved, there's tax benefits or there's opportunities generated, it's like it just kind of goes into the big pile or the big pool, and it's not really recognized on individual level. So, working with people has been something I've loved. It's one of my favorite things about what we do as well as the individual aspect of it. What what do you think sets your message apart in an industry full of tax voices? I mean, the real estate piece of it, for sure.
Speaker 1:But I feel like there's been a big shift in real estate investing and how this all ties into the, the tax piece of it. So how have you guys kind of differentiated yourselves?
Speaker 2:It's really interesting. So, like we were saying, we, you know, we, we started our career in the big four accounting firm and there we worked with all, you know, large, large, very large, corporations, large REITs in the real estate side. But like you were saying, Heidi, it's, you know, if we save them, you know, a million dollars from the big firm, maybe the CEO and the CFO get some bonus, right? Versus if we saved a mom and pop regular investor, if we save them 50 or 100 or $200,000 in taxes, that's life changing because they can take that money and invest and grow wealth. And, but in order to, save on taxes, we have to be proactive and do tax planning.
Speaker 2:One of the reasons we left Big Four to start our own firm was that when we personally started investing for ourselves, we started meeting everyday investors for the first time. And we realized that, regular people are not, are not aware of tax planning same way that really wealthy clients at big fours know how to do. And so kind of became a mission for us is we want to take the same strategies that are, you know, utilized by, like you said, NFL stadiums and, you know, the big real estate developers, and really apply it to everyday investors and really spreading that message like, hey, these are the same strategies we use. We just have fewer zeros behind them. Yeah.
Speaker 2:A significant savings nonetheless.
Speaker 1:Absolutely. I mean, it's so funny because your your message completely aligns with what we often say at ETS. And I had Julio on the podcast a couple episodes ago, who's our founder. And, and that was his whole deal. He came out of a big four firm and he was like, why can't we apply the same strategies to regular people, to, you know, normal taxpayers and people, you know, working and working hard, even in W2 jobs, and help them really understand how to build wealth.
Speaker 1:It's so overwhelming. The tax code is so complex and there are so many clients that come and they're like, okay, talk to me like I'm five years old. I don't understand this stuff. I feel like I'm a pretty smart person, but this stuff it's like, you know, you're speaking a different language to me.
Speaker 2:Talk a
Speaker 1:little bit about how you've been able to bring just the concept of tax planning and the complexity of that, the complexities of that down to more of a tangible or applicable level for people at every level.
Speaker 3:It's a great point because it's so valid to us. Mean, we talk to our team about this all the time. We've had to learn this over the years, because again, you're talking to CFOs and VPs of finance years ago who understand the language, right? But then you get to this and it's like, Hey, you don't want to use the term dumb it down, but you have to learn how to talk to people in a way that they can understand it. And it's it's a it's a it's a skill, and it's a learned skill.
Speaker 3:And but we've I think we've done a really good job over the years, and we we do that with our internal team, train them all the time as like, hey, pretend they are your 18 year old cousin or your Grandma. 35 year old mom who doesn't understand it. Whatever it is. Right? Like, how can you help them understand in this?
Speaker 3:We don't need to be technical. We just need to have a conversation and let them understand it.
Speaker 2:Yeah. And one of our tests is like, Hey, if you were telling your grandma, right, the strategy about depreciation or accelerate depreciation, say it in the way that they'll understand it. Because I think as, accountants or CPAs, we tend to, I mean, a lot of CPAs are very knowledgeable, right? And we get technical in tax code and all the little intricacies of limitations and phase outs and all the stuff. When in reality, the client just kind of wants to know what can I do?
Speaker 2:How much am I going to save? But those are kind of the two questions. We try to bring it down to that level. Like, well, here's all the rules, but here's what you need to do to legitimately use the rule. And here's how much you'll save as a result of
Speaker 3:That's it. I know, it's a it's funny as I just I just got a just talked to a client this morning, and the recurring theme was, well, I can either give that money to IRS or I can give it to charity, I can save money and give less to the IRS. Like, what's the tax savings? And that's kind of the thought process. Right?
Speaker 3:Like, what's it gonna save me? What's the benefit gonna be? And, that was kind of it's really interesting when you look at it like that.
Speaker 1:Yeah. Absolutely. Yeah. I I I couldn't agree more. So you guys have become known for being really proactive and in most situations, tax tends to be very reactive.
Speaker 1:It it's very common. People go through the whole year and then they'll gather all their documents. They'll get their accounting. They'll pull their statements or receipts, send it to their CPA in March, maybe you're lucky. It's like, okay, let's prepare the tax return.
Speaker 1:But when we look at it proactively, what does great tax planning look like? And how do you guys apply that for investors or business owners or individuals?
Speaker 2:Well, there's two components to tax planning, right? The first one is just to actually have a tax plan in place. And I think most people, don't do that. And tax planning, you know, the way we do it is we'll, a new client, we'll review their previous year's tax returns so we get an idea of what's happened in the past. But more importantly, we're talking to clients about what do you have coming up?
Speaker 2:What are your plans with respect to your job or your business growth, or maybe you're exiting a business, maybe you're looking to retire or transitioning into real estate. And it's in those conversations about what their financial goals are, where we then come up with strategies, that complement what their investment goals are. Right? So the first step is building out a plan. And I think the second step really is just simply have an open line of communication.
Speaker 2:And we even see this with our clients too, you know, who will tell us after the fact that they've done something, when the best thing that you can do as an investor is to keep your tax strategist or CPA in the loop before you do anything, before you move, before you leave your job, before you get married, before you buy a property, before you sell a property, before you refinance. Because those are all the different transactions where that there might be opportunities to really save on taxes.
Speaker 1:Do you have some examples or like cases of some things that you've been able to implement with some of your clients? A million. That's a loaded question. Decline anyone.
Speaker 2:You know, I think that, since we're talking about cost segregation specifically, something that happens a lot with our clients, especially for new clients coming in, is that they assume their CPA has done accelerated depreciation. You know, this is what happens time and time again, where they haven't. And I don't, you know, there's a disconnect of, well, my CPA knows real estate because they told me so, or maybe they own real estate themselves. And so therefore I'm sure I already did whatever Heidi and Amanda and Matt are talking about. But we see that's just kind of not the case.
Speaker 2:We have clients who, you know, own a handful of properties to most recent one had, I think over 200 rental properties. None of them cost So, segregation and you can imagine clients are pretty, shocked and angry when they find out that's never been, you know, utilized.
Speaker 3:Yeah. I think, you know, we've kind of done some we'll call some loose math, but we've looked at kind of our portfolio. We get an idea that about 40% of new clients that come to us, we find mistakes in their taxes. You know, whether it's they missed out on this, they didn't optimize depreciation, you know, maybe they did it the regular way or, you know, various different things. Right?
Speaker 3:Different opportunities they could have taken advantage of. 40% of those returns have some sort of, you know, missed opportunity. And so as CPAs, that's still, you know, who talk about this. We love speaking to the public, educating people. And eighteen years into this with our firm, it's still mind blowing to see that statistic.
Speaker 3:Right? I mean Yeah. Amanda's right. I mean, we had a client, 200 rental properties who thought thought they had done cost segregation on a bunch of the properties because they assumed, well, obviously I do real estate all the time. My CPA knows I do real estate.
Speaker 2:Like, Yeah. What The thing I always tell people now, you know, after years of seeing this mistake, always tell people don't just assume they're doing it. Also don't even ask like, Oh, you know, did I do cost segregation? We have to be even more specific with our questions. So if you think you've done it, ask your CPA, how much did my cost segregation save me on taxes last year?
Speaker 2:Because then you put them in a position where they have to actually tell you a number. Right? And so we just have to be more specific about the question that we're asking to make sure we are getting the right answer.
Speaker 3:Right. In a a similar light too. Right? Like, a lot of clients ask us too, like, hey. How do I find a how do I know I'm working with a good real estate CPA?
Speaker 3:How do I find a good one? And it's not it's not gonna be the simple question like, do you have any real estate clients? Because every CPA is gonna have at least one person who works with real estate. Right? Like, owns real estate.
Speaker 3:So it's it's more of a, hey. Tell me what are your successful real estate investors doing these days? You know, put them put it back on them. And if, you know, if they obviously clearly can't talk the talk, then you know that they don't work with real estate investors.
Speaker 1:Yeah. It's it's amazing how often we see it. I mean, we it's well every single day. But still even working with CPAs, who tell their clients, you know, it doesn't make sense. It's too expensive.
Speaker 1:It's not gonna benefit them. And also dealing with some of the passive or active rules. So let's dive into real estate a little bit because when we look at tech strategy, mean, I do wanna circle back to like the strategies you guys are helping deploy, how you're servicing clients and some of the programs that you guys offer, because it's huge for my listeners who are really looking for, great service providers and great resources where they can find the tools and the resources to become their own advocates. I think that's really the shift we're seeing across the board today. Let's start with real estate because I think even having a number of other potential tax advantaged investments available, we see some other things.
Speaker 1:I've done podcasts for oil and gas investing and some solar things and, you know, a few different things. Real estate is, is one of the most profound opportunities for investing in a way to offset tax. You guys are based in California. So I know you have clients all over, but of course you're in a very high tax state where there are investors. They have a tax problem.
Speaker 1:They've got huge tax liability, potentially a 50% tax bracket. And that's crazy. You know, you start to get at this, this income level and feel like, wow, I am, I've, I've become really successful.
Speaker 3:I've made it. I've it.
Speaker 1:Yeah, exactly. I've made it. This is amazing. And then they look at the numbers at the end of the year and think, second, where's all this money going? And realize, wow, I made a million dollars this year.
Speaker 1:That's so amazing. Wow. I paid $475,000 in taxes. And man, does that change the focus? So talk about, you know, are you guys coaching people?
Speaker 1:Are you helping them become real estate investors or what, what is the program and the way that you're helping people, kind of understand this space?
Speaker 2:Yeah, I think that, you know, especially with the passage of the one big, beautiful bill, there just has been a lot more people who are interested in, real estate investing, interested in kind of getting the tax benefits of real estate investing. So, for us, because our strategies are pretty heavily focused towards real estate, Most people who come to us sort of already know they want to do real estate investing, right? Some of them already have a big portfolio. Others are just kind of starting out maybe with their first rental or first short term rental property. And, so we, our role as advisors generally is in helping them to make sure whatever investment niche within real estate they decide to do, you know, long term, short term, midterm, and all the different ones in between, is how do we do it in a way that optimizes your tax savings?
Speaker 2:You know, ideally we want to save taxes this year against our W-two or business income, but for some investors, it's more of a slow and steady strategy, right? I would like to start earning passive income that I don't have to pay 50% taxes on, like you were saying, and then over time build up another replacement income source where I could, you know, either me or spouse or both of us can start to reduce time, and get to a lower effective tax rate. So it's kind of a different strategy for a different person. And that's where, you know, tax planning is very personalized because everyone has a different pace. You know, we have clients who are like, Hey, I just need massive tax savings so I can quit my job and go all in real estate.
Speaker 2:Or we have the physician clients who are like, Hey, I didn't go to medical school to become a landlord. So, you know, just give me a bunch of properties and, you know, I could not pay taxes on those. I'm super happy with that.
Speaker 1:Yeah. Right. So can you talk a little bit or explain to listeners about the passive versus active aspects? Because there is I mean, this is such a misunderstood, concept, I think, of, you know, investing. Like there's one group that I speak out a lot and it's all about build passive income, drive that passive income.
Speaker 1:That's a huge thing. But then there's an issue if you're driving passive income that is passive and the majority of your income is W2, it's earned income. Can you explain, like, this is always a tough one. So how do you talk with clients about the different options and how to understand the differences between active versus passive?
Speaker 3:Yeah. I mean, I think it's definitely a very nuanced subject, right? And that comes down to kind of being, you know, being able to talk it about where people understand it. So in the, in the tax world, there is kind of earned income, like you said, w two, we'll call it business income, active income. There's portfolio income, interest, dividends, capital gains.
Speaker 3:A lot of people think interest, dividends, capital gains is quote, unquote, passive income, but it's not. And then we've got in the on the investment side of things when you invest in real estate or you invest in people's businesses. The default for real estate in the in the IRS's eyes, rental real estate is it's gonna be a passive activity, which just basically means that if you generate, let's say losses on paper from that activity through depreciation, cost segregation, something like that, those losses can generally only offset passive income from another source, another rental property, maybe you're getting a k one from somebody's business you invest in, that's passive. So that's a general rule. Now, obviously, a lot of our clients who are more involved in real estate, they've got w two from a spouse or a business they're working in.
Speaker 3:They want to generate those losses on paper and be able to use those losses to offset active w two and business income. And that's where we have to look at how can we get change the treatment of the real estate rental real estate from being passive to active. And that's kind of where we get into real estate professional, maybe the short term amount loophole, things like that.
Speaker 1:Perfect. So again, I love what you were saying, Amanda, that is very personalized and depending on what their goals are and what their probably marital status is and you know, what their, their, professions are. Those are all factors that kind of roll into it. In terms of tax planning, what are you seeing and kind of, experiencing in terms of the, the climate right now with the, what you mentioned, the one big beautiful bill. What are people asking you for and what are your primary goals as we kind of, right now we're kind of circling down, you know, 2025.
Speaker 1:This is a big tax planning season. What are some of the top priorities right now?
Speaker 2:Well, I mean, you know, what I tell people is when you tax plan, the earlier you do it, the more options you have. So if those of you who did it in January, you had all of this year to plan for ways to save on taxes. If you didn't tax plan already, you're into sort of the, the last, you know, last minute strategies that you want to put in place before the year is over. And the reason for that is because where your numbers fall on December 31 determines how much or how little taxes you pay by next April, right? For the most part.
Speaker 2:Of course, cost segregation is sort of our secret weapon we can still do after the year is over. When we talk about, you know, income shifting or maximizing expenses, those are all things that have to happen before year end. And these are the things that we're, you know, we're looking at. I think with respect to the one big beautiful bill and kind of what Matt was talking about with passive versus active for investors who are non passive, right? Whether it's, you know, you are a real estate professional or you're married to someone who qualifies real estate professional, or you're using the short term rental loophole, the tax benefits using real estate, effectively more than doubled for 2025.
Speaker 2:Because under the old law, we were able to only take bonus depreciation of to 40%, but now it's at a 100% for all the assets that you put, you know, purchase and place in service after January 19. So that's a really, significant change, you know, for one of our clients, let's say who was, you know, if they were expecting a $100,000 from a single family cost segregation, now they're looking at, you know, over 200,000, right, of first year depreciation after the passage of the bill. So these are, things that are significantly more impactful. With the one big beautiful bill came about some brand new tax benefits for individuals, you know, whether it's overtime income, tip income, more you can write off on your primary home and, new car write offs. A lot of those have income phase outs, like with anything in the tax world and a lot of our high income clients, they always feel really, disgruntled because in the past they've been phased out of all those benefits.
Speaker 2:So it's kind of like, oh, it sounds good in theory, doesn't apply to me, but using strategies like real estate and cost segregation, where we can reduce their overall income oftentimes then opens up the door for these other benefits and credits that traditionally they were not able to tap into.
Speaker 1:Oh, that's a great point. Yeah. That's, that's huge. Yeah. So effectively reducing the adjusted gross income to where they are below those thresholds that essentially, ex exclude them from some of those other incentives.
Speaker 1:Yeah. That's huge. Amanda, I know you do a lot on the social media side, which I love. Love so many of your posts. If you guys don't follow her, I will share links in the show notes.
Speaker 1:Matt, I don't know. Do you have your own? Because I I can I I maybe I haven't seen it?
Speaker 3:I'm I'm I might be hiding on Facebook somewhere, but
Speaker 1:So you're like,
Speaker 3:you know, random. Yeah. I I tend to, when when she lets me, I do record some of her Instagram videos, but she doesn't like when I record her feet instead of the what I'm supposed to be recording. So
Speaker 2:Yeah. Good at taxes, bad at recording.
Speaker 3:Good at taxes, not good at recording.
Speaker 1:Well, you guys do a great job because the, the content is great. But the reason I bring that up is I shared a post a couple of weeks ago. I mentioned it on another podcast too. I thought it was so funny. The IRS posted a post on Facebook and it was like, there were, I don't know, 600,000,000 in erroneous tax credits claimed due to advice found on social media.
Speaker 1:And I thought that was fabulous that they posted it on social media. Another example, I had, I had one of my clients call me one day and she was so frustrated because she was trying to learn about cost seg and she called her CPA to ask them. And he literally said to her, so what did you hear this on TikTok? Maybe you need to get off of TikTok. Yeah.
Speaker 1:Which, which I thought was really sad. Yes. There's stuff that we need to be aware of. How would, how would you recommend taxpayers know how to navigate the madness in terms of what's legitimate and what's not?
Speaker 2:It's very difficult, you know, because I also because I'm on social media all the time, on, you know, every day, and I also have clients who will send me some of these things that are, semi outrageous, you know? So for the average, folk that's spending time on social media, I think one thing is to take a look at who is giving out the tax advice, right? So, if it's coming from a CPA who's practicing in tax, then we give more weight to that because that's their profession, right? Or if it's just an influencer in, you know, I don't know, in fashion or something else, and they happen to, you know, find a trend about taxes. It's a little bit more, I would take it with a grain of salt on whether they're saying it exactly the right way or not.
Speaker 2:I don't think anyone intends to maliciously give out wrong info, but it just might be worded in a way that, sounds too good to be true, or maybe it's just something that's not really applicable to 99% of the people. And I think we do the same, you know, with other industries, right? Like I follow physicians and I'm like, wow, they talk about a skincare product, you know, like you could be young forever. Like, is that right? When it comes from a dermatologist, I put more weight to that than an influencer who sells makeup.
Speaker 2:So same type of concept when you're taking on tax advice and always, always, always speak with your personal, CPA, right? Because the best strategies that work for, you know, Robert Kiyosaki, for example, may not work for you at all. So you just want to know. And you know, cost seg is a great example. We talk about it all the time, but there are times when people do cost segregation incorrectly, or they do it prematurely where it ends up hurting them.
Speaker 2:So always get your own advice.
Speaker 3:Yeah. I think taking off anything with a grain of salt, right, and looking at from the perspective of, you know, probably something that somebody says on social media probably could apply to somebody out there, right? So let's not say it's untrue or it can't happen, but in your situation, it's how can I take advantage of this? Not can I take advantage of it, but how can I take advantage of this? How can I utilize this in my own situation?
Speaker 1:Yeah. Yeah. That's great. That's a great point. And one thing that we always say, you know, much of our business is referred to us by CPAs.
Speaker 1:So that gives us a little bit of a comfort that the CPA is looking at the situation, recognizes an opportunity when we're working with clients direct. Our conversation is often here's our estimate, but utilization is so important. And those are factors that we don't have visibility of because we're not preparing the tax return. So it is that correlation or, relationship between your advisors and your CPA who's actually preparing tax returns. So I love that.
Speaker 1:Couldn't agree. I tell all of our clients the same things. Is there anything right off the top of your head that when you hear that about you know, those, those scary ideas that people are coming up on social media, especially right now, is there anything that you would caution people against one or two things where you're like, beware?
Speaker 2:Oh my gosh. So many. You know, the one thing that I, that really, I don't like, is a lot of people talking about, the concept of writing off your life. And, I think the narrative is just basically you can write off anything. As long as you think it's business, you call it business, you run it through the LLC, it becomes a write off.
Speaker 2:And I know as sexy and amazing as that sounds, I think we all know, right? Even people who are not sexy.
Speaker 3:We all know that taxes are sexy.
Speaker 2:Well, that but we all know that that's, you know, not the way the tax law intended us to do it. Right. And so really important to understand like, Hey, we can, we can shift some personal expenses into business deductions provided that we can substantiate or prove the business nature of but it does not mean that I'm going to form an LLC and then I just start writing everything off by paying things through the LLC and have it become tax deductible. I think that's a big one for social media because it looks good on video. You know, people just going everywhere, doing all the things and writing it off.
Speaker 2:But you just have to be careful with that, you know, kind of, again, it all comes down to business purpose. Not to say you but the question like Matt said is how can I? I'm going on a trip. How can I make it a deduction? How can I pay my kids?
Speaker 2:Right? How can I shift income to my retired parents and take it, take a tax deduction for it? The reality is not as cool as those reels. So, so it's just, you have to put more thought into actually how to do it legally.
Speaker 3:I think for me, the one that comes to my mind is some of those reels out there just make it sound like you just buy real estate and you get the benefits. You don't have to do anything. But, you know, in order to utilize turn real estate from passive to active, you have to work in it, right? A real estate professional, you gotta put hours in short term rental. You gotta self manage.
Speaker 3:So there's things to do. So people that believe that I don't have to do any work and I just, okay, I just bought the property. So you just take care of that, put it on my return that way. That's a little scary.
Speaker 1:Yep. Yeah, absolutely. I've seen quite a bit of that as well. Here's another one I'm kind of curious about. I'm curious about your take on this.
Speaker 1:I've heard the strategy, of buying a short term rental as quickly as possible. Like, again, we're very late in the year. Acquire property, get it placed in service, have some rents. And then after that, don't worry about it. After the new, after the new year, make it a long term rental.
Speaker 1:Or later you wanna move into it and it's your primary residence. Just, you know, get it in the tax year, get it placed in service, have a couple of rents so you can get the deductions, and then, you know, do whatever you want from there. I'm curious your take on that concept.
Speaker 2:Well, so what the IRS looks at, in an audit will often be the taxpayer's intent. Intent is a huge part of the ability to substantiate what you do. Right? And so, if we're talking about short term rentals as one example, technically if a property is a short term rental, it's defined by how you utilize it during this year. So if in this year, the average guest day is seven days or less, it's in service, then technically yes, you can use it as a short term rental.
Speaker 2:Now the issue becomes if I rent it out for two days this year, or, you know, two turns in January, I move into it and forever it becomes my primary home. What we're seeing a lot is auditors are picking up two years at the same time on a tax So you can imagine it's a much harder, uphill battle to fight if it rented for two days and now it's sort of just your primary home, right? You've moved into it. So much harder to prove my intent, not to say it's impossible. I mean, maybe that was the case and your old home was burned down in a fire or a flood and you're like, well, I got no other properties.
Speaker 2:I got to move in. Right? So, we tend to tell people to stay away from very, aggressive shift, in a short amount of time. Now that's not to say I have a short term rental for a year or two, and then later I do decide to move into it because I'm retired or whatever, not a problem. They take away my license to be a short term rental operator in the following year.
Speaker 2:So I have to turn into a midterm rental or something.
Speaker 3:Or, you know, maybe that maybe the market changes. Right? So you've you change it into a midterm rental, long term rental because that's the only way it pencils pencils out after six months. Yeah. You know?
Speaker 3:Yeah. Facts change, but, yeah, the intent is the intent is huge. You don't wanna Yeah. You don't wanna be where you're changing into a long term rental January 1 because, you know
Speaker 2:And the moving into one is always one that is, you know, sort of uneasy feeling for me. Right? It's like, I buy it with a primary home. And I'm in fact, you know, my kids are are gonna transfer to school there, and I just do it on Airbnb for a little bit, write off all the stuff. It's a little problematic.
Speaker 3:You know, speaking speaking about that though, right, like, I I think a good a good tax tip because a lot of people a lot of short term rentals people buy, they want, you know, their vacation homes. They wanna stay in them too. Right? So we talk to clients about if if you are gonna try and utilize a short term rental loophole, do a cost seg, get some paper write offs that you're gonna use against your w two. Well, maybe hold off on using it personally for those five, one, or two weeks until the following year when it's you've kind of, you know, a 100% of this year, it's a short term rental.
Speaker 3:Next year, yeah, it's a short term rental for most of the year, but I used it for eight days or whatever. That's okay because we've already got we've already got a big chunk of the benefit upfront. So I think that's that's important for people to understand is because you do have to prorate personal and and rental use once you start using it, personally.
Speaker 1:Yeah. Those are great points. I appreciate you guys covering that because it just seems like there's a lot of discussion in this space and it gets a little bit fuzzy. When it comes to audits, what has been your experience with how you defend or how you handle an audit for someone who's either dealing with material participation or like this, was it in fact placed in service in this particular tax year? Love your thoughts on that.
Speaker 2:Excuse me. Yeah, I think, a lot of people, I'll start with cost segregation and audits, because I think a lot of CPAs push clients away from doing cost segregation. And they reference audit as a problem, right? Like don't get a cost segregation. You'll probably be audited.
Speaker 2:Like not even sure if this is legit, like you said, right? Like, is this even legit or is it a scam? When in reality, cause you know, most of our clients are involved in real estate to some form or fashion, most of the audits we handle, do involve cost seg real estate professional. On the cost seg piece, typically not an issue. Generally they'll, either look at the paperwork, write the study itself and be okay with it.
Speaker 2:Or they might have questions for, you know, like for you guys, for example, like, okay, me about the methodology and just some technical stuff. We rarely see any issues with that. Unless if it's one of those DIY cost segs. Had a client who went rogue and did a cost seg.
Speaker 3:Went rogue.
Speaker 2:Yeah, he went rogue. He was always using a company and then one year decided not to do it. And we can do another podcast just about that whole experience, but that did not work out super well. But other than that, cost sides really haven't been an issue, in, in actual audits. What they do look at, like you said, Heidi, is material participation, hours requirements.
Speaker 2:And, you know, we always tell our clients have a log, to be able to prove what you did. And what the auditor often will do is they'll take a look at your log and do a sample selection. So it's made up of 800 lines. They might pick 10 of them and say, okay, prove these 10 various dates and you know, that you did those things. So a lot of when we do tax planning, a lot of that is surrounding what buying the right property so you can earn the right hours, right?
Speaker 2:It's not like a wink wink. I kinda did, I kinda didn't, but no, you really should be doing the hours. You have to document doing those hours. Because in real estate, especially with cost seg, we're not saving, you know, 1,000 or 5,000 in taxes, right? We're saving $50,103 100,000 in taxes.
Speaker 2:And so you just always want to make sure you have your documentation, the hours you did the right things so that if there was an audit, you have a very high likely chance of winning.
Speaker 3:Yep. And this, and this probably shouldn't come as much surprise to everybody, but based on our experience, auditors are, give a lot more credence and weight to your information, the more detailed and organized you are. Now we there's things we can do on our end to help a client, but if you come with unorganized information or your time logs are showing rounded hours every single entry, as opposed to, Hey, I did this for 0.1 or 0.3 or whatever. Again, the more detailed and organized you are, the better that experience is going to be. And the more likelihood you're going to come out with a favorable result.
Speaker 1:Yeah. That is a great point. So what do you tell a client when they come to you and they say, well, are you going to review all of my, my, information or my time logs? Or are you going to validate that everything's there or help me track all of that?
Speaker 2:It depends on the client. You know, we have clients who kind of want us to glance at it just to see if it's kosher, and kind of provide feedback on what we think they can do better. But a lot of our clients, you know, for us, what we always tell our clients is we're not the auditors, right? So we're not going to be the one to say, oh, well, you can't do this because your hours are not what I expect them to be. So it's more, you know, based on the client themselves, whether they want assistance in helping with them or not.
Speaker 2:Usually for us, it's on the consulting side, you know, it's like, Hey, what kind of things can you do with respect to this property? You know, or the clients will be like, Well, here are the things I do. Which of these actually qualify, which ones don't? I know when I can do more of those that are eligible.
Speaker 1:Yeah. Yeah, absolutely. It's a great point. So how can you guys talk a little bit about how you specifically are working with clients? Like if, if there's a client who is looking for a CPA that they feel like is going to understand their situational real estate, are you still taking clients for actual tax work?
Speaker 1:And then is that an offering? Is that separate from your tax planning services? Tell me a little bit about really what your offering is and how clients can work with you.
Speaker 2:Yeah. I mean, all clients come to us. I would say 99% of people come to us because they lack tax planning. So, you know, either they do their own taxes or they have a CPA who files their taxes, but either is not well versed in real estate or is not offering tax planning for them or what they consider tax planning, but really just like a Q and A session. So, we have different planning services and for all new clients, what we do is, like I said, we do a review of their previous year's tax returns We want to know what are some of the opportunities that were missed or some exposures, you know, maybe they did something wrong, like quantify both the savings and potential exposure.
Speaker 2:We take a look at their, personal financial statements basically, because for us, when we do tax planning, it's not just looking at the tax return. It's not just looking at real estate. We want to look at, you know, their businesses, their brokerage accounts, how much they have in a CD, how much equity do they have in all their properties? Retirement account is a big one, right? How can I move retirement money to real estate?
Speaker 2:And so with, you know, tax return, personal financial statement, and then going over what their goals are for not just this year, but maybe the next couple years. And then developing a plan around that. And then thereafter, you know, we also do offer tax filing services. And for those, it just kind of depends what the client needs are, how many of the strategies we recommend they implement. I mean, we have clients who, you know, their CPA is like their father-in-law.
Speaker 2:So they're like, I can never fire my father-in-law, but if you could just help me plan, and then I can just put, bring him on silver platter to my father-in-law and it makes his life easier too.
Speaker 3:But then the father-in-law is like, did you see this on TikTok?
Speaker 1:That's exactly right. You need to get off of social media. Yeah.
Speaker 2:It's all from, and what's really interesting is, a lot of times clients will come to us and say, you know, I've been with ICPA for so many years and, you know, kind of, hesitant to say, well, I'm gonna bring someone to consult maybe, and maybe they'll file my tax returns. And what they find ultimately is that when we're introduced to that tax preparer or when we replacement, when we replace them, they're actually oftentimes really happy, you know, because it gets to a point where like you as a taxpayer become their biggest headache because you're the one finding stuff on TikTok, finding stuff on YouTube, listening to podcasts and sending them all this stuff that they don't understand. Right. And that they have to learn it and they do all the stuff that they don't want to do. So they welcome people like us to consult as a specialist or just to take the client away altogether sometimes.
Speaker 1:That's awesome. I mean, you know, you know, what's funny is the timing on these. I always find fascinating. I was listening to a podcast last night about it was like a longevity podcast because I'm fascinated And by that as it was a physician talking about, you know, all of the newest technology and, you know, peptides and all the things, all the things in the longevity space. And he said something, and I feel like there's so much correlation between the tax world and tax planning and our CPAs as there is actually in our, in our healthcare.
Speaker 1:I think there's a lot of correlations in the in the, two professions. He said, if you go to your doctor, your physician, and you bring with you some things that you have found that are interesting or you have concerns about, or you want more information about, and they say to you, oh, so what are you the doctor now? And they're offended. You should fire that doctor and leave right now. And if you bring those things and they say, this is great.
Speaker 1:Let's dive into this. Let's, let's pursue all these things. Let's explore this because they understand they don't know everything and it's constantly evolving and changing and the opportunities are arising in all these places. It is that mindset of being open and strategic that I think is the game changer. And I think that is the game changer in the tax space as well.
Speaker 1:I always tell people the tax code is so incredibly complex. And if you expect one person to know every single line in the tax code, that's just not realistic any more than we expect our family practice doctor to know every single thing about the human body. It's ridiculous that our tax code's that complicated, but that's the world we live. Right?
Speaker 2:Yeah. Yeah. That's so interesting too, because, yeah, mean, even for us, you know, we're always taking training, you know, we're always going to training. We're going to Washington DC for another one because yeah, people say, well, you guys are like, you know, the, the experts in real estate. And for us, sometimes we find little things like, oh, I didn't know that, you know, if you did this or that.
Speaker 2:Different fact patterns.
Speaker 1:Or we
Speaker 2:have clients who bring us like movie credits, you know, instead of saying, no, that's like fraudulent. I was like, okay, well yeah, connect me with that CPA because I wanna know how are they able to justify some of these things? And maybe we pick up a new strategy outside of real estate that we didn't know about, you know? So I think you're right. It's just somebody who has that mindset of always trying to learn because we can't always know everything.
Speaker 3:Yeah. But, you know, and I, I guess play the devil's advocate, right? Like on, on both sides, like, I'll be the first to tell you there's things I don't know. So Yep. If you come to me with a manufacturing company, like, hey.
Speaker 3:I'm not your person because I don't know it, and I I work in real estate. There's probably things in real estate I don't know about real estate certain real estate tax things, But that's okay. But as long as you understand what your niche is and you're not trying to be a jack of all trades, so I'm gonna tell that client, hey, I can help you with this, but I I can refer you to somebody I know who can do that.
Speaker 2:Mhmm. That's free. Cost seg. Yeah. You know, there are lot of CPAs.
Speaker 2:Heidi, you know, CPAs who do their own cost seg and that always just makes me very uncomfortable. Cause I know as a CPA, I'm not trained to do cost segregation, but they will just do it because it's, you know, another revenue stream. Whereas for us, it's like, I want you to go to Heidi. Want you to go to the expert. That's all they do every day, you know?
Speaker 1:Exactly. Yep. Yep. And, and so often, you know, we get what we pay for ultimately in, in the detail, the depth of the benefits. So, so before we wrap up, I would love to hear a little bit about you guys personally.
Speaker 1:Like you guys, you're in real estate. You, I'm sure, own your own real estate. You have plenty of opportunity at financial freedom, if you want to call it that. A lot of these real estate gurus are all about financial freedom and passive income. So this is a lot.
Speaker 1:Tax season and tax preparation and running a CPA firm. What is your why? What is it that drives you guys? What is your why for for what it is that, makes you, you know, just just dive in and be passionate about what you're doing every day?
Speaker 2:Yeah. It's interesting. I was talking to a friend of mine from, middle school, and she told me she's, gonna retire next year. And, and I just thought, wow, you know, it's interesting because I guess we could also retire too, right, this year or next But, then what will we do? You know, for us, it's the, it's the passion of, like I said, know, when we can help somebody save on taxes, sometimes it could be life changing.
Speaker 2:And we have people that tell us that all the time, whether it's clients or even non clients, you know, at events where people come and say, I heard you on stage and I did this and that, and you know, it made such a big difference. So for us, it's kind of the cause of just letting people know that tax is not something that just happens to you, that there are things you can do to control how much or how little you pay. And it's more important than ever, because if you think it's hard to find a good CPA now, I think the research shows that in the next ten years or so, close to 70% of current CPAs will retire. Not that many people are coming into the profession because they're afraid that AI will take the job away. And so, we really, it just becomes an individual responsibility to know at least the basics of what we can do to save on taxes.
Speaker 2:And I think, you know, for us, that's the drive and, that's the reward, I guess. I don't say the drive, but also the reward part of it for us, for me.
Speaker 3:Yeah. I I think it's, you know, finding what you're passionate about. Right? Like, we enjoy speaking. We enjoy talking, meeting people.
Speaker 3:For us, it's kind of showing our boys like, hey, there's a different way to go about doing things in life. You know, you can go out and work for someone else, which is fine. Everyone does it. That's great. But there's other things you can do.
Speaker 3:You can start your own business. You can partner with somebody else. There's different ways to go about it. Right? And so trying to show them that, you know, hard work can pay off and, you know, another way for me is I don't, I don't want to retire at 50 years old and get early dementia because I'm not doing anything every day.
Speaker 3:So
Speaker 1:I love that.
Speaker 3:I to start listening to that longevity podcast.
Speaker 1:That's why I also need a link.
Speaker 3:Yeah. Well,
Speaker 1:that that's amazing, you guys. I mean, like I said, I've seen you on stage. I've seen you in multiple locations and worked with you for a number of years. I think it's an amazing thing that you're doing and how you're taking care of clients. And I tell my kids back to like the passion, I think it is a lot of legacy.
Speaker 1:My kids are adults and there's absolutely an aspect of that is wanting to show them that, look, there's this mentality of I only wanna do what I'm passionate about. And otherwise I don't wanna do it. I don't wanna work for someone else. But what's interesting is it's easy to become passionate about people.
Speaker 2:And
Speaker 1:in the end, we get to help people, like really help them and make an impact in their future. And I think what you guys are doing, what we do with tax incentives, they're not, you know, it's not about the strategy for the sake of, you know, we're gonna get you out of paying what you owe. It's, it's being knowledgeable, being your own advocate, understanding how to be really, really financially savvy, and being able to use your money the very best way possible to invest it, to grow and to create a legacy. And I think that is really we get into the tax planning side and, oh, I don't wanna pay so much in tax, but I know for us, and I think for you guys, it's really the big picture is that saving those dollars is so that it can be reinvested in grown and expanded, and it creates a legacy that you can achieve faster and, and make it bigger. And that is really a beautiful thing.
Speaker 1:Ultimately I think is what the American dream was designed to be.
Speaker 2:Yeah, for sure. I think people often ask like, oh, if I buy a rental, cost like this year. And then that's kind of it, you know, and that's if it's a one year sort of a gimmick and that's like, well, no, that's the, the point is you then reinvest that money and then you grow, you know, year over year.
Speaker 3:Well, the point is it's not a gimmick and then yes, then you reinvest the money, right?
Speaker 2:Yeah, right. That's like you said, it's building wealth. It's not a one time thing that we're just looking at today.
Speaker 1:Yeah. Yeah, absolutely. All right. Well, thank you guys so much for being here today. I'm so appreciative.
Speaker 1:I know your time is, is important and you guys are crazy busy with, with planning. I will share show links. Any closing messages to our listeners before we wrap up?
Speaker 2:No. I think just that, you know, your job is not to become a CPA. You know, you don't have to understand how to calculate cost segregation or depreciation or, recite tax law. But I think for all of us as taxpayers, we just kind of need to know the baseline, you know, what are some of the things I should be doing during the year, so that I can save on taxes because the tax code is designed to incentivize us when we build businesses, when we invest in real estate, when we put money towards retirement. And so just make sure you understand what are all those opportunities and, use those levers to help protect more of your hard earned money.
Speaker 3:Yeah. It's never too late to start doing tax planning.
Speaker 2:So unless it's next year,
Speaker 3:keep that line of communication open and yeah, that line of communication open, reach out to your tax person, have that conversation. You know, you can start planning for the future.
Speaker 1:Amazing. All right, Amanda, Matt, thank you again so much for being here today.
Speaker 3:Thanks, Heidi.
Speaker 1:Well, Matt and Amanda, thank you guys so much for joining. I really love how you break down some complex tax concepts, and you can make it real, you can make it actionable, and that you really help everyone with the strategies that they can use. What you've shared today is exactly what this podcast is about, why I created it, to really help people take control of their financial future through smart, legal, and proactive tax planning. For those of you listening, I hope this episode has inspired you to think a little differently about tax planning. It's not a burden, but it's one of the biggest opportunities for you to grow your wealth and to to grow your future legacy.
Speaker 1:Before we close, I wanna take a moment to thank our sponsor, Engineered Tax Services. For nearly twenty five years, ETS has been helping CPA firms, investors, and business owners unlock every available tax incentive in the tax code from cost segregation studies to r and d tax credits and energy efficient tax incentives like one seventy nine d and 45 l. Their team of engineers and tax experts work hand in hand with professionals to uncover real savings and fuel significant business growth. You can find a special link in the show notes to learn more about ETFs and then also show notes for everything to access with Matt and Amanda. If you enjoyed this episode, please follow or subscribe to the SlashTax Podcast.
Speaker 1:I would love it if you'd leave a review, share it with a friend or a colleague who's ready to take their their tax strategy to the next level, and share insights or let me know what you'd like to hear next. I am Heidi Henderson, and until next time, remember, tax strategy is not just about saving money. It's about creating freedom, building wealth, and designing the life that you want.