E22: Wealth Wisdom: Tax Strategies for Business Owners and Investors

Taxes are one of the biggest expenses for business owners and investors. In this episode, we'll discuss strategies you can legally use to reduce your tax bill and keep more of the money you earn. We'll cover retirement accounts and how to maximize tax benefits, depreciation, and how real estate investors can lower their taxes, as well as tax credits and incentives for business owners. Learn how to partner with the IRS using legal tax loopholes and how to select a tax professional to help you implement strategies.

Here are some topics from today’s discussion:

• The compound impact of taxes on your wealth
• How to qualify and select a CPA
• How to use the Augusta loophole
• How to partner with the IRS
• Roth IRA vs. traditional IRA 
• The 1031 exchange
• How to use accelerated depreciation
• How to use bonus depreciation to offset taxes

 

Episode Highlights:

[02:46] The Compound Impact of Taxes on Your Wealth

Effective tax planning can have a significant impact on your wealth. For instance, by reducing your taxable income from $600,000 to $50,000 and owing $50,000 in taxes instead of $200,000, you would have an extra $150,000 available for investment. Over time, compounding this additional amount at a growth rate of 12% can significantly boost your long-term net worth. Smart tax strategies and strategic investments can make a massive difference in securing your financial future.

[06:07] Qualifying and Selecting a CPA: Strategies for Business Owners, Real Estate Investors, and Philanthropists

1. Determine the Expertise Quality: When considering hiring a Certified Public Accountant (CPA), it's important to recognize that the expertise level can greatly impact both the service quality and the overall cost. To ensure you find the right CPA for your needs, take the time to qualify them through an interview-like process.
2. Assess Proactivity: One way to evaluate a potential CPA is by understanding their approach to proactivity. Discuss with them how involved you and your financial team realistically plan to be and inquire about their go-to strategies for business owners, real estate investors, and philanthropists.
3. Explore Philanthropy Strategies: If philanthropy is of interest to you, bring up the topic during the meeting with the CPA. They may introduce the concept of "bunching," which involves maximizing deductions by combining charitable contributions into a single year to surpass the standard deduction threshold. For example, instead of donating $15,000 to a charity each year, consider giving $30,000 every other year, taking advantage of higher deductions.
4. Gift Appreciated Assets: Another strategy to discuss with your CPA is gifting appreciated assets instead of cash. By donating appreciated assets, such as stocks or property, you can increase your deduction while avoiding capital gains tax. This allows you to give more to the charity while reducing the government's share.

Choosing the right CPA who understands your unique needs and can provide expert guidance on tax strategies specific to your situation is crucial for maximizing your financial outcomes. Make sure they are familiar with strategies specific to your situation, like S corps for business owners or opportunity zones for real estate investors. Finally, consider how up-to-date they are on the latest tax laws and incentives. An experienced CPA should stay on top of changes in the tax code.

[34:19] How to Use Bonus Depreciation to Offset Taxes

Bonus depreciation allows you to take upfront depreciation on passive income, potentially offsetting passive gains with large passive losses. If you can't fully utilize the passive loss in one year, it can be carried forward to future years. However, if you have real estate professional status, you can convert the passive loss into an active loss, offsetting active income instead. This allows you to reduce taxes at a higher rate compared to offsetting passive gains.

Resources Mentioned:

Nth Degree CPAs