Tax Strategist - Michael Uadiale - Getting to Financial Freedom Faster

Welcome to Ladies Kicking Assets, where we are empowering women with financial education to live the lives that they want to live. And we thank you for being here today, all of our viewers. I have with me Courtney Mohler, my co host and our special guest today who's going to talk to us about taxes and all the information that we need to know as real estate investors. Michael Uualdi with smead a couple of housekeeping items before we get started into our conversation today. Disclaimer for our show, we are not financial advisors, but we are conduits. And we want to ensure that we bring forth experts in the field and share information with you on how to build your portfolio. And also, we ask that you subscribe to our YouTube channel. We really want to make sure that we use YouTube as a platform to spread our word. All right. So Courtney, you want to take it away?

Yes. So, Michael, thank you so much for joining us today. You know, taxes is one of those things that was always kind of that dirty word. And I regret, you know, I just did not look forward to doing my taxes at the end of the year. I was always so worried about what I was going to end up having to owe and what size check I was going to end up having to cut. And so once I figured out that there were different investments that I could make where it really cut those taxes down to zero or down to nothing legally, it totally changed my life. And now a lot of the investing that I do and the things I do are strategically done to help me get to that point. So I'm so glad that you're here with us. So I'm going to let you take it from here and talk to us about taxes. And one of my favorite things is the change your facts to change your tax.

Yes.

Thank you, Courtney and Robin, it's really, really a pleasure to be with both of you this day. And you are very correct. My name is Michael Wadiele and I've had the privilege and the fortune of being the managing partner of Smith CPA in the last 15 years. I promise my next generation I'll take it up for the next five years and turn it over to them. Now, you ask a very interesting question and you are really very correct. Unfortunately, most people distaste. They really hate that word taxes. And the reality is the things you do not like, you never embrace them. And you are right, Courtney. Taxes form, in my opinion, one of the four legs of any stool for wet creation and financial freedom. I'm very passionate about financial freedom. And so I'm really very happy to see your organization kind of really bringing it to ladies especially, and hopefully other men or their husbands or whoever will come alongside to hear what you both are doing. Now, when it comes to what it takes to create wealth, I kind of look at it in four broad categories, and one of them is taxes. The other is the kind of investments you make. One key thing is insurance. And then the last thing, which is not just coming onto my head right now because I have, which is interest, expense. Now, any person who truly wants to grow wealth must be very focused, they must be intentional, and they should be very proactive in those four different categories of the things that makes up for wealth creation in our world. For those of us in the financial freedom space, one of the things I say to whoever cares to listen is the fact that if you are very intentional in aligning your taxes to your investment goals and how and where to get to, you're going to find that you'll be getting to your financial freedom at least anywhere from five to 15 years earlier than most of the average American could. Now, the most interesting thing really is being able to just do that in a legal and ethical and moral manner. I'm not going to try and go into politics here, but one of the things I didn't enjoy in some of the few years ago during the presidential election was all this talk about how a particular candidate was not being very above board on his tax returns. And I spent one weekend of my life really just going through those tax returns. And I was honestly laughing because that's what I truly advise and we coach and counsel our clients to do.

I think that's one of the issues is people don't realize that you can actually legally get to that point. You, you know that you can do that legally. There's, there's things written to, in our, into our tax code where we can take advantage of that so that we can make that happen. But a lot of people just don't realize that.

Exactly. So it's interesting to know when you look at the tax code of over almost close to 7,000 pages, 97% of that entire code really tells you how to reduce your taxes. Only about 3% of that entire tax code speaks to what the government can do to get taxes out of you. Now, it's really not the government's job to let you know you've left more money on the table that you are supposed to give to them. That's not their job. And so it's so important that any person that is really interested in getting to their financial freedom really become more intentional in how they plan their financial affairs. I say this, it sounds crazy, but unfortunately it's true. Most Americans spend maybe more time planning a two weeks vacation than they do planning their financial freedom. Right? I mean, the amount of time people spend trying to choose the destinations, the locations, how they will travel and all of that, it's more than they ever we care to spend. And so it becomes a situation where it's tax time and people just gather a shoebox of receipts and try to just dump it on an accountant or a tax preparer. Now the moment you're doing that, you've already lost the game before the game starts. What we try to teach people is you have to win and then learn to play. If you know how to win before you play, then what it means is you got to truly know what does the tax code say that can properly align your desire in a particular area of business to your desire to get to financial freedom? And financial freedom, for me, I define it more as where is that place where I am able to say I have a choice to walk away from doing the 9 to 5 grind if I'm no more interested. And I can be sure that my quality of life financially is not depreciated by the fact that I'm no more producing at that point, my assets are yielding or producing for me and not my efforts. So it's so important that people truly should embrace taxes. It shouldn't be something you are just living to some tax guy. You need to truly learn. And it doesn't mean you becoming an accountant. It just means you working with a good tax advisor who truly can spend the time, work with you, understand what your goals are for life, how you want to get to those goals, and then come back to you and say, now I understand what your dream is. Here's a tax strategy. You can build around this wet goal and then you can align both and you are off to the races.

That's right. That's right, Michael. And that strategy takes a team of people. As I've learned and Courtney's learned in our experience with our businesses, it is not instant. And so that strategy, you work with your team and you see where you are and you identify where you want to be and you bring in the consultants to make that team work for you. And so I've had the good fortune of being able to work with you and you've had powerful impact in mine and Brett's life with our strategy. And I want to thank you for that. And so as you have experience working other syndicators, what have you found has been like the common thread that these entrepreneurs come to you, and what is their main goal that you see them trying to achieve, and how do you help sort of navigate the path on helping them develop a strategy, if you will?

That's a good question. Thank you for that, Robin. Now, my experience with syndicators is most of them, too many times they focus too much on trying to get investors who eventually can fill up their need for finances to get their real estate deals going on. That could be a mistake. A mistake because it's important to truly be able to let whoever is coming in as part of your syndicate understand what your philosophy of investing is. I'll give a very specific example here. Now, if you are a lead syndicate, syndicate, or you are trying to put a deal together and you're looking for maybe 10, 15 or 15 new additional people to join that deal, you have to be sure that there is good communication to every of these people by way of your brochure or your materials that allows them to know what your philosophy will be as it relates to this real estate deal. As an example, because there are times where I've seen some of my clients trying to be part of a syndication. Now, my client is looking for tax deductions in addition to getting positive cash flow from that real estate. And if the syndicator is not somebody that wants to do a cost segregation, that may be a disconnect between you as the lead syndicator and other fellow syndicators that are trying to come into the deal. So I think one of the biggest thing is the philosophy of your group as a syndication group. If you are the lead syndicator, it's very important to put it up front. They're not in some very difficult blueprints and allows people to read your materials and say, okay, this aligns very well with what I'm trying to do. So I think that's the most biggest mistake I think people find, I notice from syndication. The other thing is trying to go cheap in your legal formation papers. Now, when you are doing syndication, there are different classes of partners that are coming into that deal. In my mind, there should be at least one or two general partners and there should be those who you want to consider as limited partners. Now, the limited partners are going to be the folks who are just bringing in the money, while the general partners are those who are really taking the lead and taking most of the risk this activity. So those are things which it's Important to ensure at all times you are very clear to your group as to what position they will be taking in this syndication. So I find those are two big mistakes that I commonly identify.

And so how would you, would you suggest then early on, as I would assume that when you're looking at syndicating a deal, you consult your team and of course your tax accountant is a part of your team. And what's the best strategy for this? Because not all deals are made the same and they don't achieve the right goals for the investor. And you want to make sure that the deal and the investor tie, you know.

Absolutely.

Or you have a bad marriage.

Right. Investing is what I call a team sports. Right. And it's unfortunate sometimes advisors who have different levels of specialty, many times I notice not too many of them are really very open minded and willing to work in a collaborative manner and provide to their clients, their mutual client, the best, optimum value. Now when it comes to putting a syndicate together, for example, you want to truly ensure that you have a great tax advisor. You want to ensure you have the right legal team. One of the things I have found with the legal profession, I used to criticize that some years back, but I no longer. That's one profession that has done a great job of awesome specialization. So you're going to find different attorneys who are great in some very niche areas and may know close to nothing in other areas. So when you are putting your syndication together, it's important to find an attorney who is really very vast in that area of specialization. Because when it comes to real estate deals, oh my God, it's like endless. Different states, different zones. There are all kinds of things that comes into play. So you just don't need an attorney. You need one who truly has knowledge of how to put the operating agreement together for your entity. Plus having a good accountant, having a good insurance agent, having a good bookkeeper and all of those things become a team and they should be speaking to each other.

That's right.

No, and that's why it's so important to make sure that you have that right team put together. And when I first started investing in syndication, like apartment syndications, I didn't even know to make sure that they were doing cost segregation. So I didn't, I didn't, you know, you don't know what you don't know. But I do know that now. And so, you know, before I invest in a deal like that, I make sure that they are doing cost segregation. You know, there's such great tax benefits that come from that. And so definitely I always want to make sure that there's a great tax strategy there. And you know, as I'm doing my own syndications, you know, I'm always looking to provide new deals that offer tax advantage advantages for the tax problems that we created from the current deals that our investors are getting in so that we have a way to create income, but then we have somewhere else for them to move their money when those tax problems are created. So help shield them from. From that.

Absolutely. So. And I wish most investors, we operate their investments in that approach where you are taking that time to really align both your investment wealth strategy to your tax. Like I said at the beginning, it's just unfortunate. I don't know how taxes came to have the kind of bad rap that it is. I'm working on a book and I'm going to title the book Taxes are fun because it's a fun game to me. It's truly understanding what the rules of the game are and using those rules to maximize your way of getting to your group.

Well, I think part of the issue is that most accountants don't come at it from that view that, you know, I think a lot of people are at least a lot of the accountants that I've always used, you know, they're just processing your return, letting you know how much you have to pay or, you know, what they're giving back to you or, you know, whatever it is and then it's done. There's not ever, you know, there was not an actual strategy involved. And I think that's the issue is that most people, you know, that's not something I, you know, I was taught. I didn't realize there were better ways to do things. So that's part of what, you know, we were so excited to have you on here is to let people know that, hey, don't just go hire the first accountant. You know, you need to find a really good accountant that knows all of these laws, that knows how to incorporate those and to help you put a financial plan in place.

That's absolutely correct. Our profession, we, I think our profession, at a point I felt like it was dying. But I can say the last five years I've been happy and glad to see there have been some very transformational change in the CPA profession. And I do think I'm beginning to notice maybe about 10 to 15% of the profession beginning to make that shift in the past. Most CPAs and accountants, excuse me, all they did was really historical right in my mind. All they were doing was aggregating data together and then dumping it into a software and send to clients. Here's your tax bill. My wife is always joking and say, look, if the Internal Revenue Service was to be scrapped by warm administration tomorrow and the government comes around and say, hey, you no longer owe taxes, 85% of CPAs will be out of business. Which is true. Now, what we do and what a group that I belong to, we really focus on. We pride ourselves, we like to call ourselves the Marines of the profession. We truly want to look at things from a very proactive perspective. Okay, we take that time to try to understand where is this client trying to get to. Now, my advice for whoever is listening to you today, if they going to get a tax advisor, one of the questions you should ask is figure out what is this person's philosophy when it comes to taxes. Unfortunately, most CPAs, I think they are unclear as to who their client is. Many of them almost work like their client is the Internal Revenue Service. Now, we don't do anything illegal. We don't do anything that is unethical or immoral, but we are clear as to who we are representing. Our representation is for the clients. It's my job to go to bat for you. And how I go to bat for you is a function of me really understanding your goals, understanding the part of the tax code that I can bring to be in your situation. All right? So most accountant, like you said, they are on the reactive side in the sense that they wait and say, okay, yeah, bring me all your receipts and everything when the year has ended. Now that's postmortem. At that point in time, there's little any good accountant can be doing to minimize your taxes. And I always say to clients, your accountants should be asking you lots of questions. It's typical for me. I've been trained that way. If a client is asking me a question, I guarantee you're going to get two, three more questions from me before I will be giving you my recommendation. Because my idea is to try to showcase my knowledge to you. My idea is to try to understand what do you want to achieve. Most business people, right, they want to do what they want to do, they want to do what they want to do. Your job as a tax advisor is to kind of let them know the parameters and the gatherings around what they want to do that can keep them out of trouble. Now, if an accountant is not operating in that mode, you may not be very well served by that person when it comes to minimizing Your taxes. I always give this example when I talk on podcasts or anywhere. I'm like, there are many ways to reduce your taxes. Now, I'm putting on a shirt right now. If I am interested in making this shirt to become tax deductible, I have to turn it from a dress shirt into a uniform. And the way I do that is to put the logo of my firm on it. And that changes my facts completely.

Yes, it does. So you said. Excuse me, you said something that was so important. You said, tax advisor. And not all accountants and CPAs are created equally. And you know, there's a specialty there in the real estate arena. And so it is advising, it is creating that tax strategy. And so I would ask you, since we have just wrapped up the first quarter of this year and it's been a really busy time for all accountants in the world, what would be a recommendation that you would have, since we're also now into the second quarter, for the investor, syndicator or individual that's wanting to create, begin creating strategy, what should they be looking at right now to impact the end of the year? And what would you suggest quarterly, over the following two quarters? So that they've had some conversations with an engage, you know, a tax accountant that they have under engagement, you know, so that there can be impact in their taxes? Because it's. It's not something you just go, in October, I want to. I want to get, you know, under a letter of engagement and expect that January you can have some impact.

Not really.

So. So you're very correct. Now, anybody who is meeting any investor, any syndicator, any real estate person who truly is interested in financial freedom and only gets to meet with an accountant or a CPA or a tax preparer once a year. You already lost the game, pure and simple. I don't know how best to put that. You already lost the game because like I said earlier, it's all postmortem at that point. Now, typically in our practice, what we do, and that's why we don't accept clients who are not willing to be in a conversation at least four times a year, because it's very important. Like, Robin, you just said, now, tax season just finished. Great, but that's 2021. Any investor should be now proactively talking to their accountant and saying, okay, here are the things, activities that are likely going to happen for me in this year, 2022, we got eight months left, and they need to begin to have that conversation as to what the tax impacts of those things could Be. Now, a good tax advisor is truly able to look at the transactions or the activities you have in mind that you're planning to do come sometime this year, he or she is able to take those transactions and say, how do I help the client maximize on this? So I say to clients, never come ask me, is this deductible? Can I deduct this pen? Can I deduct this car? The question you should be asking as a client is, how can I? So those are two different questions because that puts me in a position to say, okay, my client is interested in making this deduction to help minimize his or her taxes. My job is to say, if you are willing to follow these four steps of what I call my bond, which is our section 162 of the code, then you are going to find in most cases, you are able to do the right work to put you as the client, in a position where what you are doing is legal and ethical.

Okay, So I love that you brought that up, because that is one of the things, you know, that I learned from Tom Wheelwright was don't ask me, you know, is this. You want to ask how, you know, how do I make this deductible? So I'm glad that you said that. So can you talk a little bit about what the rules are for making something deductible?

So that's a simple question that for me, is Taxation 101. Which business person? Not really the tax advisor only, but for you as a business person, because if you truly master that, I call it the B O N D, which is encoded in our tax law. Right? The B standing for business, meaning if you are going to ever be able to deduct anything and win that battle in court, if, for example, there's an audit, then those are the first four steps. You want to make sure you're able to cross those threshold, meaning whatever that cash outflow is, you must be able to show that it's for a business purpose. And what does that mean? That really means, look, I am going to be spending this money because one way or the other, it's going to help me expand my business either geographically or it's going to help me put more money in my pocket because the government is interested in you making more money, because the more money you can make, hopefully that's how they also can get their revenue out of you. So the B stands for business. It must be for a business. Now, there are many rules, and that was why I said about 97% of the code speaks to how you can reduce your taxes. Now, that 97% helps, you know, Okay, I may be making a trip to Hawaii. And in the course of the trip, as an example, I may be having one or two days that I really want to just kick my shoes off and just be by the sea and enjoy myself. What the 97% of the law allows you to do. It allows you to know how to make, for example, your entire trip be 100% deductible, even though there may have been a couple of vacation days there. Perfectly legal. Okay, so that's the B. The other. The next word there is the O, which stands for ordinary, meaning it is typical in your line of business to spend this kind of money for you to move your business to the next level. And then the N stands for it's necessary. Okay, so then the D stands for documentation. I mean, Robin knows. Oh, God, two years plus sometimes I know she feels like we've taken her to the ringer. And which is good, because I will always say comply, too.

He's trained me well. But it's a process.

That's the whole point.

It's a process.

Yeah. So once. Once a client truly learns to follow those four steps, The B, the O, the N, and the D. The D standing for documentation, There is a paper trail, a trail that can speak to every other thing there. Then 98% of the time, you are safe. You should not, at that point, be afraid. The rest is less for your tax advisor to put in the right format so that if you are ever in an audit, which is a fact of life, I say this to whoever cares to listen. I have been audited. My 2017 tax return was audited. Yes. I spent about 20 minutes in internal Revenue Service office, and I got a $30 refund from there. But I didn't do anything wrong in my return. Okay? It's a fact of life. You must be able to do the things in the way you want it to pass the audit test.

Love it. Great.

Great advice. You've been so helpful. So, Michael, how can our viewers get in touch with you for consultation and advice?

All right, I'll put a simple email address out there. So if they send an email, which is the best way to just, first of all, get in touch with us, then we can get the conversation started. Now, we are a virtual firm. And what that means is we work across the 50 states of the country. And a couple of our clients who are out of the country, we keep two brick and mortar locations. One out here in California, one in Houston. Texas. However, all of our team members are all over the nation. The account manager CPA attached to Robin, for example, I know she works out of Idaho or somewhere like that. So we are all over the nation, but we provide services to all, anybody who is interested in having a conversation to see if we are the right fit or they are a good fit for us. The easiest thing to do is to send an email to taxis that is T A, X as in zeros, E as in Edward, S as in Sam at SmithCPAS as in Sam, M as in Mary double edcpa.com if you send an email to that email address and say, hey, you heard about us on this podcast and you like to connect with me, my assistant is going to reach out to you and open up my calendar and allow you to put some time there so we can have what we call a discovery session. Because it's important to us that we really be a good fit for you. Okay.

Yeah.

That's what we do.

Perfect. And we'll make sure that we put your contact information in the comment thread underneath this video so that people will know how to reach out to you. And so that's perfect. And so thank you so much for coming on. This has been such a great wealth of information. I'm so excited. Hopefully this has prompted people to want to take a look at their tax situation and maybe reevaluate their CPAs. And so I hope you have a blessed week. And thank you so much again for coming on with us.

Thank you. And please let your listeners know taxes is an important fact of life. And if truly, truly anybody wants to truly shrink the amount of time it takes them to get to their financial freedom, they cannot afford to be ignorant about their taxes. It cannot be. My tax guy takes care of it. No, you should be the one leading and let your advisors come along and work with you.

That's right.

That's right. It's a relationship. It is. Thank you so much for your time. So finally, for our viewers, we just ask that you'd subscribe to our YouTube channel and you can find us at Ladies Kicking Assets. And we want you all to have a great day. Remember, taxes are a part of now, not the end of the year. And so we thank you. Thank you, Michael.

I like that cash. It's a part of now.

It's part of now.

It is. It's part of now.

It's about my cash. Thank you.