AIPIS 86 - What Is Your CPA Not Telling You? With Diane Gardner

This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.com. Welcome to the AIPIS show for accredited Income Property Investment specialists and those who aspire to be if you're a real estate, mortgage or financial professional, this is the place for you. We'll explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.

Welcome to the AIPIS show for accredited Income Property investment specialists and those who desire to be this is your host, Jason Hartman where we talk about increasing your income, your productivity and just generally having a better life while serving your clients better with America's most historically proven asset class income property. We have a great interview for you today and we will be back with that in less than 60 seconds. It's my pleasure to welcome Diane Gardner to the show. She is a CPA who runs the Tax Coach 4U website and she's the author of several books including Stop Overpaying youg Taxes, why Didn't My CPA Tell me that the 10 most expensive tax Mistakes that Could Cost you Thousands and the Obamacare Survival Guide. And a lot of businesses are trying to survive under the pressure of Obama, so we'll talk about those issues and more talk about real estate, the most tax favored asset in America. Diane, welcome. How are you doing?

Great. Jason, thank you so much for having me on your show. It's always an honor to be interviewed by you.

I have a feeling I'm going to be depressed about this interview, not because you won't be telling us good stuff, but because you will. Diane, what isn't my CPA telling me?

Unfortunately, Jason, there's a whole lot that your CPA generally isn't telling you. And people are just shocked when they find out some of the stuff that they don't even know to ask the questions. Therefore, they're not getting the answers that they need. So some of the biggest things that your CPA isn't telling you are how to take advantage of tax strategies and that can save you thousands of dollars in your business or out in your real estate investment type businesses. And some of those strategies are as simple as having the proper entity type. So often CPAs and other tax preparers, they just get kind of tunnel vision and they focus so much on preparing that tax return. They focus on getting all the right numbers in the right places and making sure that everything ties and they've got beautiful work Papers that will stand up to an audit and all that type of stuff that they forget to have the conversation with their client about things that could possibly save them some tax. Find out, does this client have a home office? Are they making every tax deduction that they can get by writing off all their mileage or their home office deduction? Are they deducting the portion of their home that they're using as an office space and taking that valuable tax deduction? A lot of people aren't even aware they can do that. So those are just a couple of the ones that we see all the time when we're looking at tax returns that are prepared by other accountants.

I mean, the home office deduction isn't that kind of basic. I mean, people have been talking about that one for 20 years. Is it really that big a deal? Can you save that much with it?

Where the biggest savings comes in is when you have a home office. Conceivably, every mile that you drive could potentially be tax deductible because you're leaving from your home, which is your office. The IRS has rules that say your tax deductible mileage begins once you reach your office and head on out to call on a customer, a client, whatever. Well, if your home is your office, you just expanded your mileage deduction. And sometimes that's quite a bit of money.

Let's talk a little bit about real estate, if we could. You know, I like to say real estate is the most tax favored asset class in America, or especially income, property, of course, depreciation, it's a non cash write off, It's a phantom write off. So we don't have to write a check to get that deduction, which is great. And the 1031 exchange rules and, and then just the ability to have expenses and maybe even use a home office as a, as a real estate investor, you know, if you've got a couple of properties and you know you've got a regular day job, a corporate type job, can you take a home office deduction there too?

You potentially could. Because if as long as your home is a place where you do your administrative type work, then it could conceivably qualify for a home office deduction, which then allows you to write off potentially part of your Internet, maybe some of your other expenses to do with websites and with advertising and all those other things that go along with running that type of a business. But a bigger deduction over and above that is are you missing out on some of your medical expenses because maybe you have a job in corporate America, your income is too high. And with the changes now due to the Affordable Care act or Obamacare where the medical deduction is now 10% off of your adjusted gross income gets subtracted from your medical expenses, you might not be able to write off your medical any longer. So with the right entity type, you might be able to potentially write that medical expenses off through your business, especially if you don't have any employees. It's a pretty nice way to write off your health insurance and your out of pocket costs.

Yeah, fantastic. So maybe dive into the medical thing a little bit more. Can you drill down on that and tell give us maybe like an example of how it would work and what kind of savings we're looking at there.

Okay. A good example, Jason, would be, let's say you've got kids and they're at the stage in life where you need to be looking at buying braces for them. Well, you may or may not have enough to write off on your just your normal itemized deductions. But if you have the correct entity type in your business, you could potentially put in a medical expense reimbursement plan. If you have no other employees because you're just doing some real estate investing and stuff, then you can set it up so it's very favorable for yourself and write off 100% of all those out of pocket medical costs, which is a pretty nice tax deduction that a lot of other kinds of businesses can't necessarily get.

How does it work normally with the medical. I mean, I remember the number of like $7,000 per year or something like that.

Well, normally you would take all of your medical expenses and you would subtract from them. It used to be 7.5% of your income. Well, now it's 10% of your income. So if somebody's earning $100,000, they get to subtract 10, $10,000 off of their of their medical expenses before they can begin deducting it on their itemized deductions or schedule a. Well, with a medical expense reimbursement plan, you could potentially write off 100% of your medical costs. Your health insurance, your doctor's visits, prescriptions, anything out of pocket that way, right through your business as a bonafide business deduction by filing the appropriate paperwork and having good record keeping system.

Yeah, good, good. Okay. Anything else that our CPAs aren't telling us?

They're potentially not making sure that you're maximizing your car, your auto and truck or your vehicle type expenses because a lot of Times, they're not taking the time to run out the numbers and determine if you would get a higher write off by using that standard mileage rate or tracking actual expenses and depreciating the vehicle. Most of the time I see people just using the standard mileage rate and they're cool with that. But in the AAA studies that are done every year or two, they have shown that the average cost of driving a vehicle far exceeds the amount that the IRS is willing to allow you to take. And so most of us are actually losing money by using the standard mileage rate. So it's usually in your benefit to go ahead and depreciate your vehicle and track all your actual costs, which include your fuel, your oil, your insurance, your maintenance, tires, repairs, all that kind of stuff. It does mean some additional record keeping, but almost always it results in a larger deduction. And so most CPAs aren't even thinking about. Let's have that conversation about which one is going to give you the biggest deduction.

So.

So that you are maximizing.

Diane, what kind of money are we talking about, though? That it feels to me, I guess for some people that adds up and it's all relative to your income, but it feels like that's a relatively minor amount of money, isn't it? Or does it add up to something substantial?

I've seen it add up to several thousand dollars worth of deduction for people that they weren't even aware they were missing.

Right. And so that's the deduction amount and then you apply the tax bracket. That's the actual in the pocket savings, right?

Correct. So let's say they're at the 25% bracket for federal and they're in a state that's maybe got 7 or 8% something, you know, let's say 7%.

Or by God, if you're in the socialist Republic of California and you make over a million a year, you got like over 13%. Right?

Right. Then it really starts making a difference just to take the time to run out that calculation and see which one's going to benefit you the most.

Yeah, yeah, it sure does. Okay, good, good. What else should people know? You know, I want to talk about Obamacare too, but you know, just any, any more expensive mistakes, overpaying, you know, CPA not telling us stuff. And then let's dive into some Obamacare stuff for a moment because I've got an interesting story for you that I think you and the listeners are going to like to hear about that.

I think that a lot of times people get confused, confused about the difference between what is a tax preparation engagement entail versus tax projections versus actual tax planning. And I think they get bogged down in that and they think it's all one and the same. And I think that's why the accountants, the CPAs, the tax preparers are, if they aren't telling this stuff, is because in a typical tax return engagement, you are engaged to take the client's numbers, put those right numbers on the right forms and spit out a tax return engagement has been completed, the tax return gets handed off. They might mention something in passing, but they're doing potentially hundreds of tax returns during tax season and they just don't have the time to actually sit down and really work with the client in this way where proactive tax planning allows you to really sit down and take a look at this stuff, run some analysis, find out if the client is maximizing each of these deductions. Then put together a plan so that you can make sure that they aren't overpaying their taxes. Just even if it's just a couple thousand dollars here and a couple thousand dollars there, pretty soon you're up to between 5 and 10,015 or $20,000 in savings each year. Because all these small little things can add up to a fairly sizable amount of money.

Yeah, it really does become real money. And you know, even $1,000, I mean in the overall scheme of things, heck, $1,000 is a lot of money. So it all matters and it all adds up, doesn't it?

It does. And it's really cool when I can set up something for people so that the government ends up buying something else for them, whether it's a down payment on another piece of property. I had a client a few years ago whose dream was to own his own commercial building instead of renting. So through his tax plan, after three years of tax savings, he was able to put a down payment on a building. And over the next three, five years, through his tax savings, he will pay for that building. So when it's all said and done, after an eight year time period, he'll have a building sitting there. Compliments of the irs.

Yeah. Wow, that's a pretty nice deal. No question about it. If someone has a job in a regular day job in the corporate world, I've long said that of course everyone should be investing in real estate income property. As soon as you can afford to do it, I think you should do it because it's just the most historically proven asset class and the most tax favored asset asset Class. But I've also said for a long time, Diane, that everyone should have some kind of little business on the side, just something that they can have as a little home based business and run some expenses through it that are expenses you're probably going to have anyway. You know, you can allocate some of those expenses to your business. What are your thoughts about that?

First of all, I think that's an awesome idea and I have seen a real surge and increase in that. So since we went through the recession back in 2008, 9, 10, 11, people started to get very creative and you saw an awful lot of small businesses that you never would have thought could be something that could turn into a business are now turning into viable small little businesses that they're running on the side out of their homes. And I think it's a wonderful way to really just capsulate on all the different tax deductions they can potentially take while still making a little bit of side money.

So what is the rule about having a, you know, and I'm not even going to call it a small business, I'm going to call it a micro business, just a little home based sort of moonlighting thing on the side type deal. Sometimes mostly for tax reasons, sometimes it might turn into something big and great. You know, you never know. A lot of business have been started that way. But what is the rule in terms of, you know, does it have to make money three out of five years? I've heard that rule. Or can you have a business that just loses money forever and it's a tax deduction? Or does the IRS say, hey, wait, you know, we're not going to let you just write things off forever.

Well, Jason, there's really no hard, fast rule that says you have to make money three out of five years or you have to make money after the first five years or any of that kind of stuff? Where the IRS gets a little concerned is when you continue to lose money year after year after year after year and it starts looking like a hobby. And when it hits that hobby stage, then you're not allowed to deduct expenses that exceed your income, which means you never have a loss.

Now I would say, though, you know, can't you just make the claim that you're modeling the government? I mean, the government loses money year after year and they never make their books work. Why should we have to. Right, right.

I don't know if that one will hold up in court, but boy, you can certainly go for it.

Give it a try. Give it a try.

That's right.

Good stuff. Well, Diane, is there any question that I didn't ask you that you want to share with the listeners?

I think the main important thing that your listeners need to know is that it's never too soon to hook up with a tax professional. I hear people all the time say, but I'm just a really small little business. I should just do it myself on one of those do it yourself type pieces of software. And that from my viewpoint is probably a big mistake because when I see them a few years down the road, they have potentially missed out on all kinds of deductions from even as little as not realizing they could depreciate something or Even use Section179 if it's applicable, to not realizing about the need to keep a mileage log and just little things because they tried doing it themselves versus engaging the services of a professional to help them navigate those waters and make sure they are taking advantage. I know my husband and I own a few different pieces of rental properties and I really try to make sure that I take every deduction I possibly can that we write them off through one of our rental properties. If I can't write it off through my regular business just because that's, you know, that's smart investing and smart financing.

Yeah, I would agree with you. And every rental property is its own little business. And then if you have a. A business business, I'll call it. I don't know how to say that differently. You can likely find some place that can. You can allocate that expense to or at least part of that expense, can't you? So it just gives you more options.

It really does. It opens up the door to a whole new world. My husband's always telling me, I didn't realize we could write that off. It's like, sure, all we have to do is xyz and it's making sure you've got a good paper trail and a good record keeping system is probably the heart of most of it.

So you're saying that ye. Our former treasury was treasury secretary. Right. Timothy TurboTax. Geithner. Tim Geithner. You know, using TurboTax was not the thing, huh? For him even?

Probably not.

Those guys get away with everything though, you know, they're never held accountable, are they?

Not like we are.

Yeah. Yeah. Unfortunately. How fair is that? Good. Well, give out your website if you would, tell people where they can find out more.

Right. Okay. Jason. The best place they could go is www.tax coach4u.com. We've got some free books and free special reports and various things like that that they can pick up out there. They can also pick up copies of my books if they're interested in finding out more about making sure that they're not overpaying their taxes.

Good stuff. Obamacare. Let's talk a little bit about that. What should businesses know to survive Obamacare? You have a book by that title?

I do. And probably the best news is if you are a small business with 2:25 or fewer employees, you're probably in pretty good shape. You don't have to get involved with all the different requirements and stuff. And in my part of the country, that pretty well covers just about anybody that I have as a client, which has been a big sigh of relief because we were all pretty scared there for a while that little businesses with two or three employees were all of a sudden going to have to offer the full gamut of health insurance which could potentially have put them out of business.

Yeah. So I have a friend who's investing in real estate with my real estate investment company and then he has a couple of oil change places like Jiffy Lube, but they're not Jiffy Lube, but those kinds of franchises. Right. And I think they have three shops now and they'd really like to expand. They've got the capital to do it, but they have 48 employees. And he says that if he goes over 50 employees, it's a whole different world with Obamacare and they're just not. He and his brother own the business together and they're just not willing to do it. You know, we've seen this situation where companies are turning their whole labor force, or as much as they can of it into part time employees below 30 hours per week. What do you think about these things? And you know, just in general from maybe both sides, the general good of the for the economy and America. And then you know, what should the business owner do as well?

Well, I'm going to go from the business owner side first because I can totally sympathize with your friend. I've got a fellow business owner here in town who owns a couple McDonald's franchises. Same type of thing. Hit him because under the Obamacare rules they are all counted as one business as opposed to single standalone businesses. And so they are trying to stay underneath that magic number themselves so they don't have to turn around and offer this whole gamut of stuff that they've never offered in the past. It becomes very costly. Which the bad thing about when a business has to incur additional costs like that, they have no choice but to pass those costs on, which raises the price of everything. And then we're right back where we were to begin with in that the business is back in the same spot they were. They're still struggling to try to keep their profit percentage at what it needs to be and offer everything that's required. And it makes it very challenging on the business owner from the other side. I know a lot of people are real happy with the requirements and having the insurance. We had some really big surprises during tax season with people that went out on the marketplace and bought health insurance, especially those that were self employed and tried to guess what their net profit might be for the year. And, and their net profit came in a little bit higher and they owed a ton of money where they had to repay that credit that they received from the marketplace during the year. So this, this rule has some pretty significant repercussions on both sides, the business owner side and the individual person side.

Yeah, it's amazing. It's so complicated, all of this stuff. And everybody, especially if you own a business owner, you just live in fear that you're breaking some obscure law about which you don't even, you don't even know the law or understand the law, and yet you're probably a criminal potentially.

You bet. Yeah. There's another little ruling that's come up recently that a lot of businesses used to reimburse their employees. They may, you know, maybe they had one employee or something and they would reimburse that employee for the cost of their health insurance or they just paid the insurance company just straight across. You know, the employer paid it for them. And that is now illegal after the end of June. And it's like, my goodness, these small businesses have a hard time just getting ahead. And here they were doing that out of the goodness of their heart for their one or two or whatever small number of employees that they had and they can no longer do that. Yeah.

Wow. It's a complicated world. So what survival, I mean, we kind of went around there, but what survival tips do you have for people? Just sum that up for us if you would. On the Obamacare side, try to keep.

Your employees down below the number so you don't have to provide everything that's required under the law.

Hey folks, you heard it right here, didn't you? You heard it right here from a tax professional. Don't grow your business, don't hire people, don't stimulate the economy. Okay, good.

Yeah, actually, see if you can't delegate some things out through the world of subcontractors. Whether you pick up some virtual assistants, do some things like that where there's no doubt about it, they're definitely an independent contractor and try to help that with the number of employees that you have to actually have hired. I know a lot of people are kind of learning about the whole virtual assistant world that they never even thought of before because that can cut down on a number of a couple of employees and stuff for them, just being aware of the rules, being aware of the law. You know, it has been out there for a couple years now, but every time we turn around, it seems like there's just another new surprise with as this law and ruling really unfolds and they, you know, kind of get familiar with what it really said. There's a lot of hidden stuff in it.

I mean, the. The bill itself was what, 2700 pages? Nancy Pelosi famously said, we have to pass the bill to see what I mean, you couldn't make this stuff up. It's unbelievable. But then when you actually turn it into law and you legislate and you start making all the regulations to turn that bill into a whole set of laws, it's literally thousands and thousands and thousands of pages of regulations, isn't it?

It is. And I think the further along we go in it, the more we're going to see of just really unexpected, bizarre stuff that none of us would have ever dreamed was going to be included in that lock.

Wow. It's something else. It's. It's a crazy time to try and be in business and do all of this stuff. But, Diane, thank you for clarifying at least a little bit of it for us. It's so complex. Your website again, taxcoach4u.com and thank you so much for joining us today.

You're welcome. Thank you so much for having me. This was a lot of fun.

This show is produced by the Hartman Media company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.