Ep. 78: How To Preserve Your Capital With Todd Mardis

Welcome to the Next Level Income show where it's our goal to raise your income, investments and your life to the next level. I'm your host, Chris Larsen. You can get a free copy of our book@nextlevelincome.com, just click on the book link. Also, if you're an accredited investor, check out our Invest link to learn how to gain access to our new self storage fund as well as other institutional quality real estate opportunities. You are going to want to hear the secrets that Todd Martis of Capital Preservation Services is going to share today. He's going to tell you how you can save literally hundreds of of thousands of dollars on your taxes. Hey, have you heard of the Multifamily Investor Nation Summit? It's coming up on January 20th through the 22nd. It's a three day information packed event for multifamily investors with over 1000 attendees and over 50 speakers and including yours truly. You will hear from experts about finding deals, raising capital, underwriting strategies, selecting markets and so much more. Go to mfinsummit.com to grab your ticket. That's mfinsummit.com to grab your ticket and use promo code Next level. That's all caps. Next level to get $100 off. Whether you are new to multifamily investing or a seasoned investor, you do not want to miss this event. Join me at the Multifamily Investor Nation Summit. Visit mfinsummit.com on today's show we have Todd Martis. Todd is President and CEO of Capital Preservation Services which is an advanced tax consulting firm that works with successful business owners on a national basis. They work with you and your current CPA and his team of tax attorneys to make sure the correct corporate structures are in place and show you how to deploy multiple to reduce your income tax liability. These strategies do not include qualified retirement plan 179 deductions or heavily relying on depreciation. Todd Martis, welcome to the show.

Glad to be here Chris.

Yeah man. Well I love this time of year. We're rolling into the end of the year talking about tax planning and I'm excited to share a lot more about what you do and dive into this. Todd, but for the audience that may not know you as well as I do, maybe you can share a little bit about your story and how you originally started Capital Preservation Services.

Yeah, back in 2004 I created Capital Preservation Services. Really Chris, with a financial planning background, a lot of estate planning, worked a lot with tax attorneys, got, you know, was referred clients a number of different tax attorneys. And in 2008, was introduced to what I would consider advanced tax planning beyond just historical accounting. And I was really more interested in it for me personally than I was anything. I went through it, and I was always that person who paid my estimates, did everything right, and then always ended up having a 40, $60,000 tax liability at the end of the year that I was not aware of. Well, after the first year of tax planning, it was really only about a third of the year. I didn't owe any more money at the end of the year. And I was like, okay, well, this really does work. And kind of fell in love with it and started offering it to my clients. Morphed into partnering with a local tax attorney. Since then, we've obviously hired three more attorneys, have a full accounting department. And so it was really just a test by fire for me personally. And then I thought my clients, after being in this business for 28 years, you know, it was easy to realize the biggest liability we all have is our tax liability. You know, add up the taxes you pay over your career versus any other liability, it pales in comparison.

No, absolutely. And we talk about at next level income, how to make more money, how to keep more money, and how to grow your money. And I always tell my coaching clients, I tell even investors I talk to before start talking about the growth part, the investments. What are you doing for your taxes, for your strategy, to make sure that the holes in the boat are plugged, so to speak. So, Todd, maybe you could talk a little bit about really the difference between a tax strategist and a cpa, Because a lot of people, especially, they're successful, say, I got a cpa, I have somebody that does my taxes. But that's not really tax strategy or tax planning necessarily.

About 95% of the time is not most CPAs, and by the way, they're great people, trusted advisors. But most CPAs really don't have the bandwidth, they don't have the education to do really advanced tax planning. They're very busy, whether it's auditing or bookkeeping or tax return time. So they don't have a whole lot of time to spend in what I call just the basic R and D. Our firm probably spends two to 300 hours a year researching tax strategies and tax codes and legislation. So most CPAs are very historical. You hand them your data in February or March. Obviously the ended, as I always say, in December 31st of the following past year. So there's really nothing we can do. It's Very historical. A tax strategist or a tax consulting firm looks at ways to legally reduce your taxes every year on an ongoing basis by deploying multiple strategies, using multiple corporate structures. And obviously, we have to have the assistance of a good cpa, but the numbers become more efficient when you work with a tax consulting firm. The numbers that go on the actual tax returns, CPA puts in the right line.

Right.

That's very important. So it's more of a planning process versus a Here is my documents, here's how much money I made. Here's my 1099, here's my K1s. And you know what a CPA traditionally does is they say, all right, I'm going to take all your revenue and I'm going to deduct as many legitimate business expenses and 401k contributions as you have. At the end of the day, this is your tax liability. And so from a real level, fundamental difference. If you make a million dollars and you need $400,000 to live on, that's your prerogative as tax consultants. We don't affect that. A CPA would traditionally say, chris, you make a million dollars, that's great. There's worse things than having taxes on the money. Be glad you made so much money. Our firm comes at it from a totally different angle when we say, chris, good job making a million dollars. You need $400,000. What can we do to eliminate, reduce, or postpone the taxes on that 600,000 that you want, but you don't need to maintain your lifestyle. And that's really paradigm shift from what most of our clients have been accustomed to.

I love that perspective. And so many people, they're happy when they get a check back from the IRS the following year. And I remember I was told I was going to get a pretty substantial refund. And I was like, well, I'm a little upset. And my CPA was like, well, wait, you're getting this refund? I said, yeah, but I haven't been able to use this money for the past six months. And they're like, well, yeah, but they didn't understand why I was bothered by that. And that was the last year, by the way, that they were my cpa, I would imagine.

Yeah, you got lost opportunity costs when IRS money and you don't.

Yeah, I mean, listen, if you can't make more than the IRS pays you an interest, then definitely check out our website. But I actually, I was fortunate. I took a course by a former IRS agent, Todd, when I was finishing up my mba and I'LL never forget his name was Sandy. And Sandy said, be aggressive and keep detailed records. And I like the analogy of playing Monopoly or playing poker. You would never sit down at a poker table and gamble the kind of money that we pay in taxes if you didn't know the rules. So let's talk a little bit about knowing the rules and just some of the general structures that people, business owners, high income earners, aren't taking advantage of, that they can utilize, play by the rules and be more efficient with their dollars.

Yeah. One thing that a lot of people will say to us on a yearly basis is they've heard of some of the recommendations we make, Chris. And they'll say, you know, I read that in a journal or a journal of the AMA or the American Dental Association. Somebody posted an article and I took that, you know, idea to my cpa and he said, I don't. IRS would like that. Well, we certainly don't want to pick a fight with irs. But the IRS not liking something is not the litmus test. The litmus is, is it legal? Is it defendable? And like you said, Sandy made a great point. Keep immaculate records so that you can prove deduction was legal. You know, we have a saying that the IRS can't disprove something you can prove. However, they can disallow a limit deduction if you can't prove it was a business deduction. And for example, if you and I go out to dinner and we talk about business and I'm talking about investing in state opportunities, that's a deductible meal at 50%. However, if you just have a receipt or you don't have the receipt, you can get that deduction. However, if you have that receipt and you wrote my name and two sentences of what we talked about, the IRS was not there. So you have been able to prove something that they can't disprove.

I've been keeping these envelopes for 20 years, Todd. And every month I put my receipts in these envelopes, just like you said. I keep records of the meals, of the different expenses. If it's digital, I put it in a file to be clear, you know, for the audience. Like, we're not talking about fraud. We're not talking about doing something illegal. We're talking about playing by the rules. Why is it that CPAs are a lot of times reluctantly. I've heard some of my investors coaching clients. They come and they're like, well, Chris, I talked to my CPA about this, and they said, I don't want to do that it might increase my audit risk or they're not comfortable with that. Why do you hear that from so many CPAs, do you think?

Well, I think one CPAs buy I hate to broad brush anyone, but they're pretty conservative by nature. I think that they're very reluctant to get outside the box one because they don't know that you're keeping good enough records or the deductions you're taking are legitimate. And so if they get an audit, that's when they're going to find out if the deductions were legitimate. Right. And we have to go prove everything. The other thing is under Circular 31 and the Ox Paying League act, it's pretty stringent, you know, legislation as to what they can and can't do. They're very much aware that, you know, there's a total difference between tax avoidance and tax evasion. And really probably the biggest hurdle for them is two things that we stress 162 which is reasonable. Was the expense reasonable in amount? And then the newest codified legislation is 7701 that was codified under Obama that said is there economic substance? And so 77010 is a legal term and it's actually been dumbed down in the tax courts to say was it helpful to you? Anything that you do has to be helpful. They can have tax benefits but the tax benefits are not what would validate. So those two legal terms are really where I think a lot of CPAs back off and say I know the IRS is going to challenge 162 and 77010 and we agree that that's where the IRS is going to come at you because we're never going to recommend anything that doesn't have black letter law legislation behind it. So when we look at every recommendation we make, we look through the same lenses that the IRS is going to look through and that's why successful in all of our audits.

So you guys aren't afraid of audits?

We're not afraid of audits. And you know, it's interesting, I've had a lot of clients say that, well is this going to run my risk of an audit up? And absolutely it isn't. Because your, your number one audit risk is your income. You know, if you make seven $50,000, you got a higher audit risk than if you make 500,000. IRS refers this as a discriminatory index test, the fancy term for the more money you make, the higher chance of audit. We're going to make you look like you make less money, therefore you pay less in taxes. Interesting thought that all your listeners may want to consider is if you're a pretty high earner with 70,000 new IRS agents coming on board, you're probably going to get audited, Right. I mean, they're saying the audits are going to go up double what they have been over the decade. So if you're going to get audited, you might as well do everything legally you can. We're not going to raise the risk of an audit, but if you get audited, you know, do everything you can to legally reduce your taxes. We're not going to put you in a situation because we're going to defend the audit. Right. We're not putting you in a position to enter into or engage in something that's not going to be defendable. Matter of fact, we pull a lot of our clients back because we feel like maybe getting a little too aggressive.

There we go. And that's. I'll tell you what, one of the things that really appealed to me the first time we spoke, Todd, was the systems approach. You take you guys every week. You know, you guys are putting these systems in place to make it easy for your clients to keep track of these things. And I've always kind of been a detailed record keeper. But I will tell you, things get complicated when you have all this different stuff going on. And I love how your group makes it easy for people to keep track of things, you know, back things up, you know, record all those. Yeah.

What you're referring to is a document assistance program that, you know, I've yet to see another accounting firm or real firm offer. And it just makes sense. But, you know, your listeners are probably very successful. And what comes with success? Lack of time. And a lot of successful people are not detail oriented. They're high driver a personalities, not detail oriented. So that's the mold of probably 80% of our clients. So we created a system that literally takes you three or four minutes a week. Keep the records. And they're timestamped, which means if you're audited, the IRS can't say, oh, you went and bought 20 different color pens and, you know, backfilled your. Your calendar. These things are timestamped. It makes the audits go very smoothly.

No, I love that. And that's why, again, like, learn the rules, play by the rules, and then do everything you can. There's no reason not to do that. So let's talk through kind of like different levels of planning or maybe even lack thereof. Todd. So your average W2 employee, maybe they're making $100,000. Walk me through your thought process on who should use TurboTax, who should use a CPA, and then at what point does it make sense to work with a group like yours that does tax strategy and tax consulting?

Yeah, I mean, I would recommend anyone with an income of 150 to $200,000 definitely engage a CPA. You know, the numbers are just significant enough and you got enough money. The cost of having a CPA engaged to handle returns makes sense. Anything under that, especially W2 employees, is pretty simple. You know, you're going to have some charitable deductions and really that's about it as far as deduction. Maybe some child deductions. We see where it makes sense is really when you get into the $400,000 and of taxable income, not AGI, but taxable income, and obviously self employed, not a W2 earner, they can receive a W2 from an entity that they have ownership in. Anything under that. Chris, you know, you're playing really in about a 24% currently. And as you know from, you know, my book, we believe everybody should pay taxes. And if someone deployed our systems and they were in that bracket, we'd have them paying no taxes. And we feel everybody should pay taxes, just not overpay the taxes. Clean air and good roads and good schools. We do too. And there's a cost for those. So we're not going to be abusive to the IRS or government. We're going to pay our fair share of taxes. But, you know, our average client probably pays 3 to 400,000 in taxes. The average tax savings is probably 120 to 150,000 every year. So they're still paying a lot in taxes, but they're also paying a lot less.

Yeah, no, I mean, if you're listening again, when you get to those levels and people say you're not paying your fair share, if somebody's paying $400,000 a year, as long as they're not a billionaire, maybe that's pretty darn fair. I think.

Yeah, Chris, we agree that there are people that aren't in their fair share. Those are the next level people. Right. I'd say average clientele is going to be a half a million to 1.4, 1.5 million somewhere in that neighborhood of taxable income. Again, that's a lick. Those are the people who, traditionally, unless they engage us, have just been working with the CPA and are an effective rate of 36, 38. And we want to get them down to about 18 to 21%.

Yeah, I wrote this in my book. I'm looking at your website right now. You have optometrists, dentists, physicians, lawyers, business owners. The number one group comprising that top 1% that was kind of vilified the last couple election cycles is doctors. There's so many doctors in the top 1% they just get hammered with taxes Are doctors would make up the majority of your tax practice now, Todd.

It's probably a third in the healthcare services. Be a doctor, dentist, optometrist. We have a lot of national associations we work with particularly in optometry in the dental world. The other two thirds are business owners. I mean we have clients that are contractors, we have clients that own concrete pumping manufacturers or a lot of our clients. So 2/3 are going to be just the average business owner with a successful mid sized company. And we really don't really care about the gross revenue. I mean I have clients with 20 million of gross revenue and they make 500,000 and I've got people that have 2 million gross revenue and they make 1.2 million. So gross revenue really isn't an issue. It's really just how much are you a year on the hook for from a federal standpoint? Obviously if we get into Texas or New York or some of these higher state taxes, the savings is exponentially greater when you're throwing on 10 to 10.38% state tax.

Yeah, no, I hear you there. And there's some new legislation coming down here that going to change that a little. You mentioned your book, Todd, so I'd love to talk a little bit about why you chose to write your book, what readers can expect to get out of it. And then we're going to have a special offer if you're listening today, how you can get a free copy. But I don't you have a copy you can show because you guys look like superheroes on the front of this book and you guys are like tax superheroes. I love it.

Yeah, I don't know. We didn't name the book we had somewhere in the system.

But yeah, the name of the book. Crusaders.

Yeah, Capital Crusaders. My senior tax attorney, Walt Dallas, who's been a tax attorney for over 30 years, masters of. And I wrote it and we wrote it in a kind of a as you know, a conversational style piece with the do's and don'ts and really at a high level what we do and the mindset of what we do as well as the pitfalls, you know, the things that you better watch out for and make sure you do properly if you're going to engage in anything that has tax reduction benefits. We've had a lot of success with clients reading book and going through our process and I'll start talking about something, they go, yeah, yeah, I got that. That was chapter four. So it really does give a in depth look at what we do. As much about planning and it's as much about making sure you do it right. One of the worst things somebody could do is I give them a strategy. So here would be one. You can rent your house out to anyone in the country up to 14 days and that rent tax free. So I have a farm and if you said, hey, I want to come down and bring my kids down and hang out your farm and I want to stay there a week, I could say, all right, $1,500 a night is what I'm going to charge you. Right. And you come down, you enjoy it and you send another person down, they say, I'm rent it for another week at fifteen hundred dollars a night. Yeah, well, as long as I didn't rent it more than 14 days, I don't have to report the income you or your friend as income or the rent that you pay. Well, we show our business owners how they can have staff meetings, business meetings, corporate meetings at their home, rent that from their business. The business gets a rental deduction. The money received by the owner of the business, aka the client, as long as it's under 14 days, doesn't have to report that as income. Now you go, oh, that's easy. No it's not. You got to have a rental agreement. We have third comps on what daily rental rates are going for in your area. We have to document the meeting. You have to have an S corp. If you try to do it with an llc, it would be considered self dealing and denied. So that's just an example of doing it right and not just trying to do something because you heard about it. And that's where our tax attorneys play such a vital role of making sure our clients are buttoned up. Because you know, anytime you do anything, you know, with the irs, you should plan on, hey, is this defensible? Because I may get my number. We reference a battleship. If you're going to build a battleship, you'd build it to take fire. We build our tax plan to say, hey, if the virus ever question, we're going to win.

Yeah, if you just listen to what Todd just said. So he quoted an actual IRS law where you can Rent your house out and as long as you document it properly. So in that case, that's like, what, $10,500 a week, if I did the math. Right. So that's $21,000 that you wouldn't have to report to the IRS that you can legally deduct or legally claim, depending on which side of the portion you're on. So that's significant. So we set up a special website, Todd. So if you go to nextlevelincome.com CPS for capital protection services and put your information in there, you can get a free copy of Todd's book, if you're listening here today. So, Todd, thank you very much for offering that. And as we're wrapping up, I want to talk about something that isn't necessarily in your book. It's not on your website here, but it's something that I think is kind of why we do all these things. Todd, and last time we spoke, you're telling me about your nonprofit. You're avid hunter, you participate with your family. You've done a lot of things around land conservation when it comes to these. It's actually when we first met, you're coming back from a big trip, and we share some areas of the country that we'd love to explore. I like to ride my mountain bike and hike and ride with my family. And you like to enjoy the same things with your family on a different sense. But if you would, please tell us a little bit about the nonprofit, why you started it, and who you work with.

Well, we have several things that we do. Conservation easement. And what we're doing there is we're taking property and we're creating green space. 170H is the tax code that deals with easements. And what legislation passed said if we want green space, you know, everywhere everybody likes to see grass and trees. You know, not everyone wants to see a high rise in pavement. Matter of fact, there's all kinds of programs where you have to buy credits. If you destroy things, you mess up water mitigation areas. Well, it's similar to that. The government said, if you will take a piece of property and you value it because you take its highest and best use away and you create a green space. And most restrictions are going to be restricting any type of commercial or personal development. In the future, we'll give you a tax break based on amount of value give up on that property. And to your point, the property that I think you've mountain biked on, that I've elk hunted on, and right outside Telluride. The family wants to sell it for $10,000 an acre. And you and I talked about this. Well, right down the road there's property that's subdivided into three and four acre lots that's a little further from Telluride than this property. And they're selling it for $80,000 an acre. So it would be impossible to say that the highest and best use of this property that you and I have enjoyed would not be $80,000. Now we would have to put road systems in, sewage system, high speed Internet, cabling, but that would be the highest and best use. All right, well, if you and I bought that, which we've talked about and we said we'll restrict the use of it to where it can never be developed, and under 170H, it says you get a $70,000 per acre tax deduction. We've now restricted it. We can never in perpetuity. Like if we did this, your kids and my kids and our grandkids would want to go spit on our grays because be given up millions and millions of dollars. Right. Because everything would be developing around them and they wouldn't be able to develop it. You know, so that's just a great play. It's a win win. And the IRS can't stand it. However, they've been beating their for years changing it. And really they're going to have a tough battle because in Congress you have people who like tax deductions and then everybody who likes green space. Right? Yeah. One of our easements was we didn't mine for a lean clay that they're using in Louisiana to rebuild the levee systems. Had we mined this farm, there would have been a 200 acre, 80 foot hole ground. 200 acres. And the depth that the clay was mineable efficiently was to 80ft. Wow. Destroyed any chance of any habitat of wildlife. We've created a major carbon footprint for years and years. Excavating the material out of that farm, well, that's a win, win for everyone. And so again, that's just an example of a strategy. And Chris, you've seen our, you know, our program. We probably have 18 different strategies and it's not a cookie cutter approach. There are going to be some things that, that make sense for some people that don't make sense for other people. But the good thing is we'll take a look, as you know, we've done with you, we'll take a look at your situation and we'll say, hey, this is a good fit or it's not a Good fit. We'll show you the strategies, what the tax benefits would be before you engage with us. And that by looking at two years of tax returns, personal and corporate, and a questionnaire. And then if you decide you want to work with us, you know, we engage immediate and we go to work on the legal side creating the corporate structures. And you know, similar to your motto, we believe you earn more, keep more.

Yeah, no, it's fantastic. And again, if you're listening, you're working through this process of figuring out how to protect yourself, how to keep more of the income of the revenue that you make and ultimately looking to grow that into the future. Reach out again. Nextlevelincome.com CPS. You can get a free copy of Todd's book. And if you want to learn more, what's the best way for listeners to get ahold of you, Todd?

Probably email or I'll give them a phone. Email first is just an introduction. It's pretty easy. It's T for Todd, T Martis, M A, R, D, I, S and then it's at and it's C for Capital, P for Preservation, S for Services, and then LLC for Limited Liability Corp. And then S marysam.com so it's T martis@cps llc miss.com and if you do email me, just reference you know Chris podcast so I can make him aware that you guys came through the podcast and his network of listeners. And again, Chris, man, I enjoyed meeting you several months ago in the study group in Nashville and look forward to working with some of your clients and helping them earn more and keep more. And really the bottom line, Chris, is our clients are successful. I always joke and I say if my clients want to be driving the Ferrari, they'd be driving Ferrari. They want to drive a Porsche. So when we create tax savings, that's money that usually doesn't go to a lifestyle but goes back to creating wealth for their family and that can be used to invest in your real estate transactions reinvested in their business. I'd say the average after 10 years is going to have an extra 1.5 to 2 million of discretionary assets or income. And that's what it's about. Federal government isn't doing a great job spending our money right. So if you can keep some more of that and reinvest it with Chris or back in your business, that's just a better return on your investment than just throwing it to the irs. And by the way, lastly, your timing for this call, Chris, is great because everyone, I hope unless their head's been buried in sand, knows that this administration is going to raise your taxes and it's not going to be just on super wealthy. It's going to be on 4 or 5, 6, 7, $800,000 earners and it'll probably be around a 20 to 25,000 increase in your tax liability across the board just with some of the basic things they're coming up with. Yeah.

Again, if you're listening today, I highly encourage you to check out Capital Preservation Services. Todd, thank you so much for spending your time today with the listeners. And real quick, before I let you go, if you go back to your 25 year old self and give yourself a piece of advice, what would it be?

Read More I really started reading in my 30s and really that was kind of a game changer for me, learning to be an expert on taxes and planning. And you know, I always tell people your personal development and your intellectual property that you own is key to success. And that would probably be the number one thing I would tell my 25 year old self is start reading more earlier.

Awesome Todd. Well, thanks for sharing your wealth of knowledge here. People can read your book. They can read this on the blog. You can listen or Even watch on YouTube. Todd Martis, Capital Preservation Services, thanks again.

Absolutely. Thanks for having me Chris.

Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to gift you. We have a page for my coaching where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also please like share and take just 90 seconds to give us a rating on Apple Podcasts. It.