Saving Taxes with Real Estate With Natalie Elser

You guys, hi, how's it going?

I'm good.

Good.

What's up? Welcome back to the podcast. Thursday, 4:00 PM Pacific Standard Time. You know what it is? We're going live. We have an amazing in-studio guest today. Um, this is the New and Experienced Investor Podcast, the real estate podcast for real estate investors from all walks of life.

All walks.

Isn't that great?

All walks.

It's amazing. I'm one of your hosts. I'm Alex Barnett. I'm the new guy.

And I am Joe Homs, and I'm the experienced guy.

Mm-hmm.

Or the old guy, whichever.

You've had some experiences recently I think we're going to talk about. Oh yeah?

Yeah.

Okay, you say so.

Yeah.

So today we have an amazing topic. Um, it's one that's near and dear to my heart. Because it's just recently come into my life.

Yeah.

Because before real estate, being in a band, you don't really have to worry about paying taxes because you're not making any money. So yeah, I'm kind of hinting towards it, but, you know, once you make this money, how do you keep it? That's gonna, that's kind of gonna be what we're talking about today. And we have an amazing guest in studio. I can't even wait to introduce her, But before we do that, let's talk about our meetup Monday.

This coming Monday, it's already 6 o'clock, Hangar 24, Irvine. Be there. I'm going to teach you how to flip a property in less than an hour.

That's right.

Not the actual property, but how to flip properties. Yeah, in less than an hour.

There you go.

Yeah, because it's not brain surgery. It's You know, it's a system. And you put the system in place and you can flip properties. You could actually flip anything. But yeah, we're going to talk about properties because that's what we talk about here, real estate.

Yeah, it's good. It's a good topic.

It is, yes.

And it's a good skill to learn. So I want to see everybody there. And we mentioned it last time, but as Joe breaks down each person that you need when you're flipping a property, even if you're going to do it yourself, You know, you may need a team member or 2. They're all going to be there at the meetup.

They're going to be there.

So agents, private money lenders, contractors, wholesalers, mentor, mentor, everybody you need is going to be right there. So it's going to be an amazing time.

Everything except the property.

Everything except— yeah, that's the one thing. But don't worry about that right now. We're going to get that handled for you. So let's go ahead and jump on into it.

Let's go.

We have in studio with us today, and she's going to be talking about how to keep your dang money, Natalie Elser. What's up, Natalie?

Hello, how are you?

Great, how you doing? Thank you so much for joining us.

I'm doing great. Thank you for having me today. Super excited to talk to you guys about real estate and investing and saving taxes, my most favorite topic.

Oh my gosh, I didn't know I love this topic so much, but I do. Welcome to the new That's right. Jump on into it. Maybe explain who you are, how you got into real estate, what you were doing before that.

Sure. My name is Natalie Elser. I'm a CPA. I also hold my real estate license as well. Although I'm not actively out there buying and selling houses with customers, I mostly have my real estate license so that way I can assist people with buying and selling businesses. And what initially got me into it was I genuinely enjoy real estate. I find it fascinating. I've watched my clients over the past 20 years, you know, invest in different, you know, real estate, whether it be commercial or individual homes, residential, vacant land, different businesses. And I've really, really watched the wealth of my clients grow over time. And I've thoroughly enjoyed helping them plan for their future. Save money in taxes, and it's just been over an overall great experience. So I've just that's initially what got me really hooked on real estate was just watching the whole process, and here I am today. And I am also the owner of California Professional Accountants Group. We have a full-service accounting firm. We're located in Irvine, California, and we offer everything from bookkeeping to tax returns to we can do business advisory services. We can assist you in purchasing or selling a business. We have on-staff corporate consultants that can help you grow your business in all aspects. We have one individual in particular, he specializes in construction, so he can help you with all construction aspects of your business, whether it be operating, what insurance you need, can help you with bidding projects.

Wow.

Okay, step back for a second because I I thought I heard you say you've been in the business for 20 years.

Yes.

Oh my God, I thought you were 21. Yeah. Like, did you start when you were born or what?

Yeah.

No, I did. I started, I started very young. Um, my parents both owned a construction company when I was young, and they made me start working as a teenager in their office. And so my mom started teaching me bookkeeping. And, uh, she made me review tax returns with her, the corporate tax returns, the individual tax returns.

Yeah.

Obviously, because I was working in the business, I had my own tax return as a teenager. She would make us review our own returns. When I say us, I have 3 younger sisters, so they had their returns as well. We had to sign them, even though it all looked good to me. I didn't really know what I was looking at at the time.

Mm-hmm. That's great.

But I've always been a numbers person. That's just, numbers are near and dear to my heart. And so it just resonated well with me. So when I got to college, I started at 17 years old doing the books with my mom. She started teaching me then. And I went right into college as a business administration major, knowing I was going to be a CPA when I came out the other end. So.

Wow.

Cool.

Kudos to mom and dad.

Way to go.

That's awesome.

Yes. Great parents.

That's awesome.

Yeah.

That's awesome.

Yes. So I've been doing accounting for a very, very long time. I speak construction. My parents also invested in real estate as a kid up until now. So I've seen them flip homes. I've seen them invest in different real estate ventures. And because I speak construction, I understand what a lot of people are saying when they talk about the backbones of the house as well.

So what is your normal client?

So my typical client, uh, we will only take clients that either invest heavily in real estate or they own a small business. And when I say small, that can range anywhere from, you know, a couple hundred grand a year that they gross all the way up to $100 million about there. I think our biggest client right now, they gross about $100 million a year. So Ooh. Yeah, and I'm very, very involved with our clients. So even our largest client that we have right now, I have staff that does their bookkeeping for them, both personally and their corporate bookkeeping. I personally stay on top of it every month. I'm reviewing everything. I speak to those clients probably once a week, and we talk all aspects of business. Anything that they're investing in real estate-wise, Their main corporation is not a real estate company, but I help them with many business decisions with that corporation. To, I can sit down and have the meeting on their behalf with their bankers if they need a line of credit or a loan. So I work very, very closely with my clients. I'm not one of those one-stop, not one-stop shops, I call them a chop shop.

Mm-hmm.

Where they essentially, you come in, you sit down for an hour, you do your tax return, boom, we see you in a year. That's, that's not the type of firm we are. We like to work with our clients consistently throughout the year.

You don't like the guy that comes in with a box of receipts and says, here, do my taxes?

We will take you initially, but—

Ghost that guy next time.

We will take you initially, but we will push you over, you know, away from the dark side, as we like to call it. And we will make sure that you get on a good accounting system and make sure that everything Everything's taken care of consistently. And we will either teach you how to do that yourself, or we will do that for you. But you only get one time to come in with those box of receipts. You don't ever get to come back with them again.

Well, that's good. That's fair. Yeah, that is fair.

We're very technologically forward too. So I have some clients that even though I am on the phone with them all the time, and we are consistently working together on Zoom meetings, I maybe haven't seen them in person in like 5 or 6 years, you know? So we try to keep things very technologically advanced. COVID did, you know, push a lot of people into that, but I tried to start our firm from the beginning that way because I didn't want to be behind the times and backwards. I didn't want it to just be an old-school stuffy CPA firm. We're not your typical firm.

Do you use software? I mean, QuickBooks, is there some special software that you use that you like the most?

Sure. Um, I mean, I'm married to QuickBooks.

Okay.

Unfortunately.

Yeah.

Um, and I only say unfortunately just because of how expensive it is these days. It's not as affordable as it used to be. Uh, and they've pushed everybody to QuickBooks Online, basically, uh, which has come a very, very long ways. People complain about QuickBooks Online now, but I mean, had you looked at it 7 or 8 years ago, you would've really hated it.

Yeah.

But I started using QuickBooks as a teenager. So when my mom was teaching me bookkeeping back in the day at their construction company, she was using QuickBooks in the very early years. And that's initially where I got my start. So I pretty much know the program like the back of my hand.

Nice.

So I, I can help people with all aspects of it. Like I said, I can do the bookkeeping, for you myself, or I can sit there in a training session and teach you from the ground up how to do, how to use QuickBooks for your bookkeeping service. Where I personally am trying to get away from doing all the day-to-day work all day long. And I'm teaching my staff how to do a lot of those things. But still, there are some things that I just have to handle myself, so.

Yeah, like move out of the way, let me do it.

So you have a flipper come into your office and he's, let's say he's flipping 10 properties a year. Um, he's not on QuickBooks, so you want to first thing just put him on QuickBooks, correct?

Yes, that's the first thing we want to do. Some, some people do use Quicken, which I don't hate, but it's not my favorite.

I use both, but I use Quicken for my rental properties. Uh, QuickBooks is for the flipping business. So, uh, I'm walking into your office and I'm saying, you know, I've got 10 properties, I'm going to do more next year. You know, this paperwork stuff is, is a killer. So you've, you've got me on Quicken— I'm sorry, QuickBooks now. Um, what is, what is, what is the next steps? What, you know, what are you going to recommend to somebody like me?

So for somebody who had, you know, let's just say 10 properties that they're flipping, uh, I'm just going to ask you a little bit more specific of a question. Are they just developing those properties and flipping them, or are they renting them out in the interim?

No, they're just flipping.

They're just flipping.

Yeah, buy, rehab, sell.

Okay, so if they are too busy to handle the QuickBooks themselves, then what I would say is, hey, why don't you let us take over the monthly bookkeeping for you? You will make it completely comfortable for you to where either you send me your bank statements and your receipts every month, or if you want to give us access to those items online or in some sort of Dropbox folder, that's totally fine. We'll handle the bookkeeping for you. Because QuickBooks has pushed to the online version so much, we can set you up online to where you can see your records at all times and we can see them as well. So it's very, very live interaction. You can make sure, you know, if we've misclassified something, that you're catching it, but you can always see financially where you stand. You can pull up a balance sheet or profit and loss any day of the week and it's going to be accurate. So that would be the next thing we would recommend. Yeah.

And so, uh, I, I, you know, I've been doing this for a long time, and so I've always done my own books and stuff, and I taught myself how to do QuickBooks and stuff. But for somebody who, who, you know, is not knowledgeable and does that and hires you to do that, um, you know, you were talking about classes, and I mean, I know what you're talking about, but maybe you could like Okay, say I've got 10 properties. So what are you going to do with those 10 properties? Am I able, am I able to look in QuickBooks and say, Property A, this is, this is my expenses, and then go through all my properties? But then at the end of the year, like you said, the profit and loss for the entire business is this, correct?

Yes. So you can use a classing system within QuickBooks. Okay, so let's say you had 10 properties up there. You can name the properties accordingly. Usually what I use is the address when I'm classing properties. So that way you can see these are the expenses that all need to be allocated to this property. And this is the income that came through. And what you could do is you could pull up a profit and loss by class, essentially by property.

Mm-hmm.

And you can see what each property is netting at the end of the day. And then at the end of the year, you can see what all of those properties combined are netting you. You can see, you know, if one property was a loser in the year, if one was a great winner. You can sort of see a trend for yourself. It will also help you with budgeting because as you're pulling up those P&Ls by class— profit and loss, sorry, I'm speaking accountant here— you can see, hey, maybe I'm over budget right now, or no, I still have $30,000 or $40,000 left that I can put into remodeling this property in order to get it Sold. So those are things that you can pull up live. Or I still have clients to this day that they're like, I don't want to know how to pull up the reports. You just pull them up for me and you send them to me every month or every quarter, however often they want to see it. So that's great.

So my corporation's an S corp, and that's just a tax designation, correct?

Correct, yes.

Okay. And, but that means that a certain amount of my profit has to be paid in W-2 wages. Okay, I hope I'm not losing anybody out there.

You're so deep right now.

I'm insane.

Joe's so happy talking to you.

What, what is your recommendation for flippers as far as percentage for W-2 versus ordinary income?

Um, so a lot of people like to go an extremely safe route, and they say 50% of your net income should be a safe number for your W-2 as the S corp owner. I take a little bit of a different approach, and I say whatever is reasonable, what you would pay somebody else to do your job within that S corporation. So just because the S corporation's netting $1 million at the end of the day doesn't mean that you need to take a $500,000 salary that year. Maybe it's $150,000 or $200,000 a year salary because that's what you would pay a manager to do your job normally. You're higher.

I love this.

Yes, I'm actually taking 30% myself.

Oh wow, okay.

So it sounds like I'm maybe I'm a little high.

You might be a little high. It just depends on what your net income number is.

True, that's true. But yeah, I like it already.

Yeah, it's good. This is good.

Getting creative already. Okay, so We've got that taken care of, and I'm going to lower my 30% down. But what else? Me as a flipper, what else can I do to— and I know this is going to be Alex's question as well.

One question.

Yeah. Is how can I lower my taxes at the end of the year? What can I do during the year? What, what, you know, other things can I invest my money in? To lower that, you know, 401, for example?

Absolutely.

Buying a new car?

There's many different things.

What are the tricks?

Yeah, there's—

We want the tricks.

You want some tricks? Okay, so I'm going to use you as an example.

Legal tricks.

Yes, awesome. Okay, because flippers are all different because we have, you know, flippers where this is not their day-to-day job. You got the ones where, you know, they're moonlighting as a flipper. They're maybe, you know, flipping 1 or 2 houses a year.

Yeah.

So they may not have an S corporation. So I'm just going to leave them aside for a moment. I'm going to use you as an example.

Okay.

So you've got the S corporation. This is like a day-to-day job for you. Yes, a 401 would absolutely be something that I would highly recommend for S corporation owners. And not just your basic 401. I usually say open up a 401 profit sharing. And that is to allow you to contribute to your 401 through your wages. Which will lower your federal taxable income and your state taxable income. And then at the end of the year, if the company has made enough money, you can also contribute to the profit sharing portion of your pension plan. Now, the only caveat to that is if you have employees that are full-time that are also contributing to the 401 profit sharing, you do have to contribute for them as well. But it is a tax deduction for you and it keeps your employees happy. But that is, that is one of the best retirement plans I think that is out there for S corp owners. You can absolutely put your car into the company. You do need to be using it for business.

Mm-hmm.

But once you exceed that £6,000 limit, that does get you extra depreciation, which we like to call bonus depreciation or Section 179. There are 2 different types of depreciation. I misspoke. I don't want to lead people down the wrong path. But when you have a vehicle that's over 6,000 pounds, it's going to get you extra depreciation in the year that you purchased that car. So it can significantly lower your tax bill. And, but you do have to pay very special attention because some people just assume like, oh, well, I got an SUV this year. I'm going to get the extra depreciation. No, you need to make sure that it exceeds that 6,000 pounds when you purchase it.

Do you think a Cybertruck qualifies?

You know, I actually haven't looked to see what the weight of a Cybertruck is.

Oh, it's way over 6,000.

Are they really heavy?

I'll show you before you leave.

Oh, no, I'd love to take a look because I actually haven't, like, I've seen them on the freeway, but I actually haven't looked at one up close. I don't get out of the office much right now.

No, it's scary. It's scary.

Oh, no, that's awesome. I didn't realize they weighed that much.

Oh yeah. Oh, very cool.

Okay.

It's all battery.

Oh yeah.

And tires.

And tires.

Yeah, battery and tires.

The Cybertruck weighs 6,603 pounds.

There you go.

Then it absolutely qualifies.

Yeah.

Yeah.

Awesome. Yay.

Yes.

Yes. There's also some common expenses that people just don't think about, like everyday expenses that you can put through your corporation as well. I can't tell you how many times I look at a person's financial statements and I'm like, hey, do you use your cell phone for business? And they're like, well, yeah. And I'm like, well, why, why am I not seeing a telephone expense on here? Um, uh, family members, a lot of family members do work for, uh, you know, whether it be their spouse or their kids working for their parents, and they're just, you know, working for free.

Right.

And I, I tell people all the time, like, Hey, if your kids are working for you or your spouse is working for you, you can put them on payroll as well. And it has a few different benefits. And I'll give you the biggest example is when the kids work for the parents. And this is what my parents did when I was a teenager. I worked for them. They paid me a wage. I got to put some of it away into a Roth IRA. Right now the limit's $6,000 a year. You know, when you're that young. But I got to put some of that away. It's gotten to grow tax-free all these years, and it's $6,000 per year. I also got to put money aside for college. I got to put money aside for my car. And that also allowed me to put money aside to go shopping whenever I wanted to.

There you go.

Sounds like a dream life.

How much money would you want to pay a child today that they don't have to pay any taxes on. There's a certain amount.

Sure.

It's a little over $13,000 a year right now.

Okay.

Yeah. And that will keep the child in a 0% tax rate. And I do always have to tell people the child does legitimately have to work in the business. And you'll want to keep track of their time. But, you know, a lot of kids work in the business and people just don't really realize it. For example, I have several friends who are realtors and they use their kids and their family in their pictures when they are showing homes, when they're showing homes. And they want to show like a nice family life here at this house. And so they're posting these Instagram pictures or pictures on their websites. And I'm like, the time your kids are spending taking those pictures, they're working in the business. And so if you keep track of those, you can legitimately pay them and compensate them for their time. And to me, I actually think it's one of the best ways to save for a child's college.

Absolutely.

Yeah.

Yeah. And so that's a perfect example. So you have your kids in display advertising real estate. Is there a fair wage to pay them? I mean, if you have one of the kids in the office stuffing envelopes, and I can imagine they're kind of not gonna be paid $100 an hour. Although, you know, the fast food workers are making $20 right now.

Exactly.

So is there a difference between stuffing envelopes and modeling?

Oh, for sure. I mean, what, what I tell people and I recommend is going online and looking up what, you know, the average wage is for those types of duties. So you could go online and see what the average kid is being paid for modeling. And you are correct, the fast food industry is paying $20 an hour right now. So it's not completely out of line to be paying somebody $20 an hour to stuff envelopes.

Right.

Clean the office, you know, doing filing. Kids these days blow my mind with what they can do with computers and cell phones. I mean, anytime I get a new cell phone, I have to hand it to my youngest sister to do all the programming and show me how it works. And I mean, I'm only 40, so, and the cell phone Phones, you know, totally confuse me these days. So, but you hand it to, you know, a 12 or 13-year-old and they, they do, they completely blow your mind. And any time that they spend doing that for your business, that's time worked in the business. And as long as you document that, you can pay them accordingly.

So do you think my grandkids asking me $100 an hour for a photo shoot is too much? Or—

I mean, $100 an hour might, it might be.

They're cute.

They're cute. Well, okay, well then they're $125.

Oh, nice.

Yeah, so like they're asking you for that? Do they have an agent or something?

Yeah, that's nice.

I mean, yeah, there you go. Yeah, maybe they need an agent and maybe they would be able to up it more than $125 an hour. You never know. They may work Grandpa.

Yeah, you're like, I'll get different kids, don't worry.

We actually put them in a YouTube video that hasn't been published yet.

That's right.

Yeah, the other day. So I may have to be paying $125 an hour.

Oh, I will remind them the next time I see them that.

Okay.

I mean, if those videos go viral too, they're gonna make a lot of money.

Yeah, that's true.

And so they— I mean, think about like what the Kardashian kids probably make. I mean, they're probably well over $100 an hour.

So yeah, yeah, just depends on what you're thinking.

I'm very conservative. $100 is okay for me. It may not be okay for them, but $100 is the new like $20. They're not adults. They don't have a say in what I pay.

That's right.

You know, they'll be happy with what I give them.

That's good. Um, Lauren and I have this thing where whenever we go out to dinner, we just say, if we say real estate 3 times, we can write it off. Is that a thing?

Yeah, we look each other in the eyes and we go, real estate, real estate, real estate.

Yeah.

Does that count?

Uh, you have to do a little bit more than say real estate 3 times.

Dang it.

Where did we come up with that?

I mean, I mean, it can come up 3 times in the conversation.

Gotcha.

But when it comes to meals, you do need to be discussing business and there does need to be a purpose to it. So whenever there is a business expense, it does need to be ordinary and necessary to the business. That's the way the IRS code is written.

Oh, that's up for interpretation.

I think you're good with saying real estate 3 times.

Real estate 3 times.

Okay. So what, what are the current rules for deducting a meal? Isn't it there's a certain amount that you don't even need a receipt under that amount? Over that, you would have to produce a receipt?

I would keep a receipt for every meal that you eat.

Yeah, it is.

Isn't there an IRS rule that says, and I'm not positive, but I think it says like $25 or less, we're not going to ask you for it.

They probably will not look at it. But they, they do have the right To look at what the IRS can look at, whatever they want.

They don't believe me?

Yeah.

Oh, come on.

Biden's coming for you.

I mean, but you know.

He's got COVID. He's asleep. He's asleep right now.

He's taking a nap. One of his many. But there's, the IRS can technically, if you're going through an audit, they can look at any receipt that they want to, whether It could be down to 2 cents and they can look, they have the right to look at it if they want. So I always tell everyone, keep your receipts, especially with meals, because you will not remember what it was that you discussed 3 years down the road. Just keep a note as to what was discussed and why.

The actual receipt, or is it okay that it's downloaded into QuickBooks?

That's totally fine.

And it's Says $25 at Sizzler. Remember, I'm old, okay? But I got these guys hooked on Sizzler.

That's right.

You know, it's funny, we were—

You're not spending $25 there, I'll tell you that.

We were in Riverside and I introduced him to Sizzler and I said, are you sure you want to go to Sizzler? It's like the average age in there is 70 and above, you know? Like, you live around here, we have one on El Toro. And it's been there over 40 years. And Laguna Woods people, like, they go there all the time because, you know, it's all you can eat.

Mm-hmm.

So, it's like you see them coming with giant plates. And we went there and we're walking out after eating. And this old lady's walking in and she hits on him, you know, literally just, Oh, you got to leave too early. You know, I just got here.

Yeah.

Okay. I told you I had my ice cream.

Like, yeah, I told you, you know.

Yeah. Yeah.

I wasn't there that day.

No, you weren't there. You weren't there.

Yeah.

Oh my goodness. That's hilarious. I used to love Sizzler.

Okay.

Yeah.

Just the downloaded, you know, says Sizzler. It's categorized with meals. If you present that to the IRS, they're going to say, okay, that's good. You don't actually, because, you know, it's like the real estate, real estate Real estate, I hear that you actually need the receipt or no?

I mean, if you don't have the sizzler receipt, it's going to be fine. But I would put a note in QuickBooks, which it does allow you to put notes in the transactions now, saying who you were with and why you were there. That's all I would do. Because I have seen auditors come back. And for example, I had a client, it's been several years, but he was audited. I won't go into why he was audited. He was told though he was going to be based on one large expense he had. I forewarned him. He didn't listen.

Red flag.

It was a very big red flag and I told him.

Was it a boat?

Oh my gosh.

Was it the boat?

It was not actually. It was a very large consulting fee and it really didn't have to do with his business. And I told him, I said, this is not going to fly. And he was like, and I want it on there. I need to write it off. And I was like, put a note in the file that we discussed it. He didn't listen.

Good for you.

About a year and a half later, here comes the—

he's like, now listen to me.

What the heck?

And I just, I flat out told him, I was like, hey, we're acquiescing to this. I'm not even going to argue this with the IRS. You want to argue it, go ahead, but I'm not going to. But one of the things that they asked was he had some conference fees on there that were a legitimate expense that he had to travel to. The conference was in Spain. Um, yeah, so it was very nice. He's, um, they actually asked if he had a brochure from the conference.

Oh, I've heard that before too.

Yes.

Oh my.

I don't know if they would ask for that now because we live in such a digital world now after COVID. This was pre-COVID. Uh, but yeah, that was one of the things they asked for. And then, um, He was also putting his wife's cell phone expense through the business at that time, and she didn't work in the business.

Oops.

Come on, it's just a little bit.

Yeah, they cut— they— the auditor, since they already had the big expense, they just went for it at that point. Just—

yeah, God, they just love doing that.

Yeah, I was shocked though that he had the brochure. Oh, he did have it? Yeah, he had a brochure, and I was like, oh, thank God.

But—

He got one thing right.

What are the chances? What are the odds of actually getting audited for, for a corporation?

A corporation is much slimmer than if you operate as a sole proprietorship.

Thank you.

Yes, it's much slimmer.

What does what's a lot slimmer mean? Percentage, do you know?

Oh, I actually don't know the percentage. I heard the percentage rate a few months ago and I don't actually remember the percentage rate.

Guess.

I want to say S corps were maybe— I don't even think it was 5%.

Correct.

Yeah, I don't even think it was that high.

I agree.

Yeah.

Awesome, huh?

Yeah, that's good. That's good.

So it's, that's a, that's a very, very good, a lot of people operate as a sole prop or a single-member LLC, which we can talk about that either later or another day because single-member LLCs are not my favorite. But there has to be a balance sheet reported on the tax return when you have an S corporation. So there's a little bit more checks and balances when it comes to the corporate return as opposed to a single-member LLC or a sole prop.

Mm-hmm.

So there's a little bit more trust there. And auditors generally are not as experienced with corporate auditing as much as they are with individuals.

Mm-hmm.

It's, an individual tax return has a lot more avenues that they can dig into. Because once they go into one, and let's just say you are operating as a sole proprietorship and you have a Schedule C on the return, Once they go into that Schedule C and they start auditing that, it can now open up other avenues where they can start looking at your itemized deductions. They can start looking at your capital gains. So there's a lot more room for them to start looking at your return there. With a corporate return, it takes a little bit more of an experienced auditor to work on those. So, which the IRS is lacking at the moment.

Ooh. Thank God.

Yes.

But I want to tell you about my, Only audit experience in my lifetime. It was 40 years ago.

Oh, wow.

It was, um, you weren't born yet. It was during— it was during the '70s. During the '70s, it's like everybody kind of went crazy, and there was a lot of different investments that you could invest in. But I was mostly in real estate, and, you know, I got my taxes, my personal taxes, down to zero because I was filing everything through my personal taxes at the time, which I don't recommend to anybody. You need to have an LLC and file, you know, as a business because 3 to 5%. So anyways, my experience was, um, they just, they just wanted to know everything about my rentals. And so I went in, I sat down, and the guy goes, okay, how much income did you make? And I go, here, here's all the receipts, you know, because I gave them a receipt every month for the income that I received, which is what they wanted.

Mm-hmm.

Um, I'm very organized, by the way.

Oh, that's awesome.

Then they said, okay, well, what about these expenses? Okay, what about this property? And we're back and forth, you know, a few properties. And he looks at me, he goes, okay, I'm done. I go, what does that mean? He goes, we don't owe you anything and you don't owe us anything. We're done. I go, really? That's it? Big lesson. Okay, if you're listening, Make sure you're organized and have receipts for everything you're writing off.

That's right.

Because it is scary. I went in and I don't get scared very often, right? Yeah, but that was like scary, um, sitting down in front of this IRS guy by myself. I didn't have anybody representing me.

That's pretty good.

But as long as you have receipts and everything's provable, There's not much that can happen. I mean, have you been through audits? I'm sure you have.

Yeah, I mean, luckily, knock on wood. I, when I am prepping a tax return, I am very, very big, and I'm not saying that this is audit-proof, but I am very, very big at the end of the day, taking a step back from the return before it gets submitted and taking a look at it and being like, Okay, do I see any red flags on this return? If I was an auditor on this return, what would catch my eye? What would I go in and look at? And I'm not saying it's completely audit-proof, but I try very, very hard to do that on all my tax returns before they go out the door. And I learned that from an old boss that I had. He used to do the exact same thing. And in my 8 years that I worked for him, I only had 2 audits come across my desk.

Nice.

Yeah. And one was the one that we were talking about earlier.

Yeah.

Yeah. Yes.

So, so how did I— that's a curious one to me, because how did they find out? Uh, I mean, what, what was the red flag that was raised on that one?

Well, the first thing was he had a sole proprietorship.

Okay.

So we'll start with that. So the first thing was he had a sole proprietorship. He was older. And when I say older, he's probably in his late 70s, I want to say. He had retired from his main job. He used to have a corporation and it just converted into a small part-time Schedule C where he did some consulting work. I want to say he only grossed about $13,000 in income that year.

Mm-hmm.

And he had about a $26,000 consulting expense.

So he lost money?

Yes.

Oh, that's a big red flag right there. You know, come on.

Yeah.

So when you're only making $13,000 and then you've got, you know, this very large expense and consulting outside services, those are big red flag line items for the IRS. You know, it was very easy to look at and be like, you know, this consulting fee really didn't have to do with the business because it legit, It legitimately didn't because I did question him on it. And so that's what stuck out. And so then that led into the conference fees because they're like, oh, you're only making $13,000 a year. Like, what are you going to a conference for? So, but we were able to prove those and they took it.

It was in Spain. I mean, why are you going to a conference? It's in Spain.

Yeah, that's why.

That's why.

Yeah, exactly.

It's like, hello.

Duh.

Exactly. I would love to go to some continuing ed classes in Spain.

Let me tell you.

IRS guy.

Don't you go to Spain, you know, for a conference?

Obviously.

They don't send you there. Where do they send you? Las Vegas during the summer.

Yeah, pretty much.

Columbus, Ohio.

Columbus, Ohio. Exactly, there you go.

Yeah.

The other audit that we had actually was a real estate developer that we had. He did have an S corporation, but he also had rentals that he held personally. And it just so happened that the year he was audited was a very hot year for rental properties to be audited. And he, lo and behold, got chosen. But he hadn't made any money in about 5 years. He really had lost his shirt on a big investment project he worked on.

Mm-hmm.

And this wasn't too long after the 2008, you know, big real estate crash. So he had, I don't know if I can say ass on here, but he really lost his ass on those projects. And so he was really just starting to make income again, but it was constantly being offset by these previous real estate expenses he had or losses that were carrying forward. And so the IRS, of course, picked it up. An agent came out. I want to say we went through that audit over the course of about a year and a half to 2 years.

Wow.

Just because it took so, long. It wasn't that the auditor did a bad job. He was actually extremely nice and pleasant to work with. But real estate was not his forte. So he had to bring in somebody who specialized in that within the IRS. But at the end of the day, I think he ended up with a $90 tax bill.

Oh, nice.

And that was only because he failed to issue his 1099s like he said he did.

Yeah.

So they got him on that. But there was no changes to his tax return.

Yeah.

Yeah.

So he had, he had what I call a Donald Trump issue.

Yes.

Because Donald went through the same thing and he didn't pay taxes for 10 years. And of course, that's, you know, oh my God, he hasn't paid taxes in 10 years. That's because he's lost all this money.

Exactly.

And it's carried forward to the next year. And so he doesn't have to pay taxes because he lost this money.

Yes.

You know, do you want to step in his shoes and lose all this money? You can do the same thing.

Exactly. People forget what happened to him with Atlantic City and everything. So yeah, no, it's very, it's very true. I mean, that's the thing about being an entrepreneur or real estate investor. It ebbs and flows. Not every, every investment is a winner. Um, and so sometimes you lose and sometimes you win.

True.

I don't want to lose. I don't want to lose.

Nobody does.

Nobody does. You just have to make sure your wins are bigger than your losses.

There we go.

It's life.

It happens.

Yeah.

All right.

If you don't lose, you don't learn.

Yeah. Maybe, um, touch on— because we have some, uh, wholesalers on here that, um, you know, that's always their biggest thing. They're like, do I need an LLC? It's just one guy out of his room trying to find these properties.

The basement.

The basement.

In the basement.

Yeah. And he's, you know, wants to get this LLC because everyone's telling you to get that. What are the tax implications like you spoke about earlier?

So when you're a single member, sole member, whatever you want to call it, with an LLC, the LLC classification is more of a legal term. It doesn't do anything for you tax-wise. It really reduces your exposure to liabilities and lawsuits.

Mm-hmm.

So it doesn't allow you, like the S corp we were talking about earlier, where you can do the 401 profit sharing through wages. The LLC does not have That same ability to where you can do that through a W-2. So all of your income when you have an LLC is subject to what we call self-employment tax, and you really can't control it as well as you can with an S corporation. So you get the additional Social Security and Medicare based on what you made in the LLC, not based on what you pay yourself as a W-2 as you would in the S corporation. So the LLC also is treated tax-wise like a sole proprietorship. So it still goes on a Schedule C on your individual income tax return. It doesn't have a separate filing for the feds. There is a report that is due if you're in the state of California. It's called a single-member LLC report where you have to report your gross, gross earnings in the LLC, not the expenses, just the gross earnings. So that way the lovely state of California can see if they can assess you an additional fee on those gross earnings. You can lose money, they don't care. It's just based on what you gross.

Wow.

So the LLC classification strictly is a legal thing.

Yeah, so you would want to form an LLC for liability protection then?

Correct.

Because if you're just working as A person, they can personally sue you.

Absolutely. Yes. Yeah, it puts you— it completely exposes you personally. So, you know, if you own your home individually, your cars, other assets that you have, you really put those at exposure if you don't have some sort of legal shield, whether that be the LLC, an S corporation, or a C corp even.

But don't you think if you're going to do that, why don't you just go all the way and do an S corp? You know, file the taxes separately for the business than personally, you know, because that way you have the best of both worlds, really.

Absolutely. In the beginning, when some people are first starting out, they don't really have the money or they aren't making the money for the need for an S corporation. I get a lot of young entrepreneurs that come to me that they listen to, you know, TikTok and Instagram and all those wonderful things. They get these wild ideas and they're like, hey, I want to form an LLC today so I have a legitimate business. I'm like, the LLC isn't what makes you legitimate. How much money do you plan on making this year? What are we looking at? And they're like, well, it's more of an idea. I just have a few expenses, you know. this really isn't going to be a legit business for another 3 or 4 years. I'm like, then we don't really need anything right now. And, you know, I'm not just talking about like wholesale or, or real— I'm talking about like any business. Because what a lot of the TikTokers are going on and the Instagram influencers is they're just telling people, hey, you want to save in taxes, go ahead and form yourself an LLC and just write off your travel and write off your car. But these are people that, you know—

You're saying the TikTokers are wrong? Come on, Natalie.

It's, it's, people can get their information from the dumbest people now.

It's crazy. It really, uh, hurts my heart when people call me and say those things. Cause I'm like, oh, please stop. Just, just stop. Um, but you know, if, if people are coming to me and I do know that they have a legitimate business and it is going to make money and we're not just BSing here on the phone or whatever, you know. then sometimes I do tell them, hey, you know what, let's just go all the way and we're going to form an S corporation. Or if a C corp, because a lot of people forget about those, if I feel like that's maybe the better option to choose, then sometimes we do a C corporation, which we don't have to get into that today. It's a completely separate type of entity. And I usually say people need to be a little bit more sophisticated in order to have the C corps these days.

Mm-hmm.

The S corps are, 99% of the time the better option. So yes, so don't listen to everyone on TikTok and Instagram.

Yeah, please.

Yeah, probably like 1% of people.

How about YouTube?

Yeah.

Is that better? It depends on what channel. We're on YouTube.

It depends, you know. I was listening to a very famous podcast. I won't say who it was because it's very, very well known, but they did have a CPA on there one time that was giving some very interesting tax advice, I will say. And I, I was dying a little bit inside because I was just like, oh, I don't know how much experience you actually have in this.

Oh yeah.

Yeah, so don't listen to everyone. You can listen to them, hear their ideas, but you know, make sure you do your own research.

Yeah.

Yeah.

I mean, just like we were talking earlier, you know, what was it, Joe? One of your clients had a very interesting advice from their CPA.

Yeah, I don't want to talk about it.

Yeah, well.

I gave them my best advice. I just confirmed it with you That that was my best advice, and it was true. But they're not taking it, so I'm moving on.

Yeah, you gotta move on.

That's it.

Moving on.

You can lead the horse to water, but you can't make him drink it.

Nope, that's true.

Yeah.

Like okay. I just know that they're not going to come back to me and say, "Why didn't you tell me about this?" Right. You know.

Yeah.

I did. You did. Yeah.

And you're their agent. You don't have to give them tax advice. So it was very kind of you to even.

Yes.

You know, say what you need to say.

Oh no, I always preface, I am not a CPA, but I've been around the block a couple of times. You really ought to check this information that you're getting from your CPA because I think they're wrong. But again, I'm not a CPA.

Yeah, special disclaimer.

Well, and the other thing I will say on that too is everyone assumes that just because the person doing their taxes and they're signing the return is a CPA, We're not all created equal. So please double-check the designation of the person that you're using because there are more than one designation that can, you know, prepare tax returns. But CPA is the highest level that you can have education-wise and licensing-wise. And you can always go on the California Board of Accountancy website and double-check our license numbers.

I think this guy was employed by H&R Block.

Oh, okay. I'll be quiet.

Yeah, yeah, yeah.

I'm just kidding.

Bottom of the barrel.

Just kidding.

I'll just be silent on that issue.

What do you think about, I mean, are tax laws changing every year? Is that something you have to keep up with? Because we always hear the fearmongering about how like there's going to be unrealized gains that you're going to be taxed for and they're going to raise it up to this and that.

And is any of that true?

Uh, so far So far, no.

Okay.

My hope is that that always stays away because I think that is a ridiculous rule if you were going to tax people on their unrealized gains. Taxing people on money that they didn't actually earn.

Scary.

In my opinion, yeah, it is. It's very scary. And that could leave people in a very huge cash deficit. I mean, just because you have money invested and let's say, you know, there's $500,000 in gains there that are unrealized. You haven't actually sold it. But what, maybe you only have $50,000 in your actual checking account. Like you're not going to have the cash to actually pay the tax on those investments. You'd have to sell those investments in order to pay the tax. And at that point makes it realized.

So.

Yeah.

Freaky. So I had heard that you could get away with that by just saying real estate 3 times.

Real estate, real estate, real estate.

Everything is fine.

And there you go.

Oh my gosh.

Do we have anybody in the chat?

We got a couple people in the chat. You already know who's here. She's here every week.

Say hi, Liz.

Hey, Liz.

What's up, Liz?

Hi, Liz.

All right. And then we got Stephanie in the chat. She says, I'm loving this. Keep talking.

Cool. Hi, Stephanie. All right.

You guys ready to watch some videos?

Let's do it.

All right. These might be the TikTok videos you were talking about, Natalie.

Oh yeah, let's see.

I'm gonna brace myself.

Okay, so let's get some reactions. Here we go. Now this is always the fun part.

Just press that mute.

Yeah, in the year, and you have to show that you're spending at least half of your time in real estate more than any other.

I'm gonna restart.

So the law requires that you have to spend 750 hours managing your rental property in the year. And you have to show that you're spending at least half of your time in real estate more than any other thing, which is too hard for many taxpayers to do unless you're a real estate agent or real estate broker. Yeah, exactly. How do you show that? You have to have a real estate professional log booklet, which is something you can download offline and log your time. Now, let's just say you don't have the time to show the government that you're spending more time in real estate than your, your Amazon business or your day trading or any other profession that you might have. You can run a short-term rental business as long as you're renting out a property short-term, like an Airbnb, for an average period of 7 days or less. You can have a property that you can claim rental losses on. And I have a lot of W-2 and 1099 taxpayers who are now buying Airbnb properties and leveraging this strategy as a loophole around the passive activity loss rules that were created in 1987. So the law—

Oh, he said the magic word, loophole.

I said a lot.

Maybe, maybe just explain what the real estate professional status is.

The real estate professional status, yes. So if you're a real estate professional, which is what he's talking about in the beginning of that clip, which he's saying, you know, over the 750 hours that you need to have to show that you're a real estate professional, that allows you to get around the passive activity loss rules. So most real estate investors do the, you know, Real estate is their little side gig. They've got a day job, you know, whether it be they're a doctor, a lawyer, a CPA, and they've got, you know, a couple of rental properties on the side. Obviously, those types of professionals, their main job is not real estate. They're not spending 750 hours a year doing, you know, real estate projects or helping people buy and sell houses. It's just a little passive activity that they have. Now most of those people are higher income earners, so they are earning a few hundred thousand, you know, maybe a million dollars a year if you're an attorney, depending on what kind you are. So, and their rental property is losing money. The way the IRS rules are written is once you exceed a certain threshold of income, your rental losses are limited, meaning you cannot take Rental losses in that year if your income exceeds that threshold. And that threshold varies whether or not you're single or married. And I want to say it's at about $170,000 a year right now if you're married filing joint, but I know that's not the exact number. I'm just giving a round number here, so don't quote me on that. You don't lose all your rental real estate losses, but they do carry forward until either A, you sell that property, Or B, your income drops low enough below that threshold where you can start taking those losses. Now, if you're a rental— or rental— if you're a real estate professional, you get around that loophole and you can take those losses against your ordinary income in that year. And there's no cap on that, meaning there's no $170,000 threshold limit. You can take those losses no matter what.

So my My question to people is why you would buy something to lose money on every year. And I know the losses are like depreciation related and stuff. So let's say it's not, but it's like, why would you buy anything and lose money every year?

It doesn't make sense.

I mean, the real estate professional designation is for, you know, people who do different things with depreciation in a year. And they can write off a, you know, a bigger amount. And that, and that's awesome. There's some new rules about that. But I always tell people, it's like, don't buy anything you're losing money on.

Yes. You know, thank you for saying that.

Yeah.

Yeah.

Why would you do that?

You're making so much. I want that problem. I'm like, I need to buy a non-cash-flowing property like right now.

Why?

And before we go to the next video, I want to ask you about another way to lower your taxes. And I'm sure you're familiar with it. It's called the Augusta Rule.

Yeah, yeah, the Augusta Rule. It's a—

That's child's play to her, Joe. Jeez.

Yeah, it's, uh, um, most, most of the younger folks on here probably will not know what Augusta is, but for the rest of us, we all know what what Augusta stands for. But the Augusta Rule is essentially where you can rent your personal residence out for less than 14 days a year, and you do not have to pay any taxes on that income at all.

Nice.

So, and obviously that comes from the old Augusta Golf Tournament that happens every year.

Correct.

So that's where that rule stems from. And I currently have several clients who utilize that rule full-heartedly every year.

I do.

Yeah, you should.

I do.

Absolutely.

I rent out my personal residence to my businesses. Yeah.

Yeah.

And I mean, I've got a rental form.

Yeah, perfect.

I checked with the local, you know, businesses that rent out spaces and I said, how much do you rent this out for?

Yes.

And I write that off. I mean, I've got, again, I'm pretty organized. I've got everything documented.

No, that's perfect.

But those are the kind of steps you have to take to, you know, kind of protect yourself at the end of the day.

Absolutely. You definitely want to, yeah. You did it perfect, Joe. So what you want to do is see exactly—

You're a crowd-pleaser.

Teacher's pet over here.

I like that. You want to see, you know, what the local businesses are renting out spaces for. And a good example is I have one of my clients right now, they rent out their home every year. They have their annual holiday Christmas party there for their whole company because the owner, she has a very, very nice backyard. And they have a relatively large medical facility that they have. And so there's a lot of people that come in, but they are able to rent the home out to the company for about $7,000 for the night. And that does not have to be reported as income on their individual tax return.

Nice.

So yeah, it's a very, it's a very nice little rule. And especially if you live anywhere near the beach, Yep. You can get a very, very nice price for, you know—

Premium.

Yeah. Thank you. Very nice premium for—

I don't write off $7,000 a night, but I like that.

Yeah.

Yeah.

And I don't live near the beach either.

You have a nice view though. Maybe you can bump it up. When was the last time you checked?

I'm gonna have to check. It's been a while since I checked, but—

Well, and holiday prices are always higher.

Good deduction. It really is. It's a good deduction.

It's a very good deduction. It's very underutilized in my That's my opinion too. Yes.

I got to get all the tricks.

We got a question from Chad. He's asking, how would you structure a business to shield yourself from the most risk? Would you put a holding company owning individual LLCs, open some of those LLCs in Wyoming? Let's say it's all active income.

Okay. So I'm going to preface this with, I'm not an attorney. So I have to always say that because a lot of people come to me for a lot of legal advice. The more shields that you have, I usually say the better. Some people get a little too wild and they'll have, you know, 2 rental properties that are just your basic everyday rentals that they want to form 27 entities for to keep shielding themselves. I do like out-of-state entities because usually if someone has to sue you, they usually or wants to sue you, I should say, usually they have to go file within that other state in order to do that. And a lot of people are not willing to travel into that other state to file a lawsuit. I also do like the idea of holding companies and then having individual LLCs within those holding companies. You always have to measure your risk. And I always, always suggest speaking to an attorney. I am a huge proponent of people having a very strong team around them. So not just having a CPA, friends, and TikTok as advice, but you should always have a very, very good insurance broker at your side at all times. That's number one, because I think people underestimate how the power of insurance and having great insurance policies can really keep you out of trouble. And also having an attorney by your side at all times. And I usually say 2 attorneys. Oh gosh.

Number one, you always need a very good trust and estate attorney.

And number 2, you always need a very good business attorney. So those are my big team members that everyone should have on their team.

We could form LLCs in Guam. Is anybody doing that? I don't know. Yeah, because isn't that like a US territory?

Yeah.

Yeah, see, I'm going to make that TikTok tonight. You need to form your LLCs in Guam because when people want to sue you, they have to travel there and it's really hard to get there.

US Virgin Islands.

Maybe somebody wants to go to Guam.

I know. Well, it's like a 16-hour flight.

I'd go.

So you're talking Wyoming, that's too far for people.

Guam.

Okay, there we go.

All right, mic drop.

Wyoming is a hotspot though right now for rental properties to be formed in. So yes.

Okay.

All right, we got another video. Smart ways rich people use real estate to avoid paying taxes. Here we go. Oh, this mute button gets me every time. Hold on.

All these people are really good looking on these videos.

It's on the top.

Yeah, yeah, yeah.

No, you can trust this guy. Look at him. I would never trust this guy.

Rich people avoid paying taxes by purchasing real estate each year, which generates more income for them. By doing a cost segregation analysis, they can lower their tax bill. Big real estate investors buy large buildings to receive a substantial write-off. For example, buying a $10 million building can result in a $2 to $3 million write-off, which can offset their income for the year. This strategy can lead to paying zero taxes, and it's just a paper loss and no actual loss occurred. Rich people avoid—

Yep, gotta believe him. Look at those glasses.

I mean, I, I know there's a lot of us that are able to purchase $10 million properties on our own, so—

Yeah, it's not so hard.

I'm going to get one this evening, actually.

Yeah.

He's not, he's not actually wrong when it comes to the cost seg analysis. So, and I have had several clients who own large buildings. They don't all cost $10 million. They might be a couple million dollar buildings where we have utilized the cost segregation. And what it does is it accelerates the depreciation. It basically front ends it. But you got to remember on the back, whatever your front end, there's always a back end.

Thank you. Thank you.

So there will, you know, your losses will not be as large or, you know, your income will go up extremely high in comparison to what it was in the beginning. So you do have to be mindful of that. California does not conform to Fed rules with this.

Geez.

So California and the federal government are not always in line. What goes for the Fed is not always true for California and vice versa. in case people didn't realize that. But the cost seg analysis is pretty awesome if you are into front-loading your expenses. For those of you who don't know what a cost seg analysis is, is you have to hire a professional who this is their expertise is the cost segregation. And what they do is they go to the building and usually it's a commercial building 'cause those are the ones that can be broken down into so many components. And those are the ones that usually cost a lot of money. And they take the components of the building and they break them down. Because usually when you purchase a rental property, most people just take the full cost and they depreciate it over 27.5 years or 31.5 years, depending on whether it's commercial or it's residential real estate. What they do is they go in and they might say, okay, well, this is a $10 million building, but $500,000 of this is actually fixtures in the building, which those can be depreciated over 7 years rather than the 31. Or they may say, you know, there's $30,000 of machinery and equipment here, and that can be depreciated over 5 years as opposed to the 31. So you start front-loading some of this depreciation. But most of my clients who do the cost seg analysis tend to forget after you know, 7 or 8 years that depreciation has kind of—

Gone.

Gone.

Yes.

And all of a sudden their tax bill starts rising and they're like, why do I owe so much money?

Wait, wait, wait, wait, wait.

Yeah, I mean, you know, the IRS is not here to, you know, be friendly. So they're going to get it some way, you know. It's, I mean, it's, it's like 401. It's, you know, you can write it at the beginning, uh, but they're gonna tax you when you take it out.

That's right.

You know, and they have an age limit too. 70— was it 72 now? 73?

Yes, it is. Uh, I believe it's 72 and a half, and it's set to increase the next couple of years.

Oh, good. Yeah, I'm chasing it then. Nice.

Yes. So there, it's set to increase. Um, they are letting people's income— or, you know, not their income, but their assets grow a little bit more Yeah. Due to more people living those longer lives.

Longer.

So I also think they wanted, if you ask me personally, people to take out larger chunks.

Yeah, yeah, yeah.

Of money over time.

Makes sense.

But yeah.

And that was just my thought process. But yes, you're right. And the way it started off, the thought process behind it was, you know, you put the money away now while you're earning a lot. And so you're saving it at a higher tax rate. And yes, you will be taxed tax on it when you take it back out when you're older, but you should be retired at that age and your tax bracket be much lower. So at least you're being taxed at maybe, you know, a 10% or 15% rate, as opposed to a 37% when you put it away. But it is 2024 and nobody retires at 65 anymore, pretty much. So.

See, and that's another thing I've heard for 40 years. It's like, when you retire, your tax You know, percentage that you have to pay is going to go down to 10 or 15%. Like, I don't plan on mine going down. It's like, I want to make the same amount because I have investments, you know, than W-2 wage. Why, why would I want to plan for it to go down? It's like, that didn't make sense to me.

No, it doesn't make a whole lot of sense to me either, because that pretty much means That you're just laying there all day long and not doing anything or your money's not really out there working for you.

Exactly.

So I have, you know, I do have some clients that they retired and they don't have a lot of income. I don't have a ton of those clients, but that situation actually these days is actually sad because they really actually don't have income, enough income to even live.

Yeah. Yeah.

So you go to— you move to a mobile home in Hemet and then you go back and forth to the casino every day. That's kind of the lifestyle.

Yes.

So I've seen it. That's all. That's the only reason why I know that.

Sad.

It is.

Yeah.

It's sad.

Unless you win big that night.

Yeah. I mean, and not downplaying the people in Hemet, but the people that I know that do live that life, you know, it's, it's not a pretty one. Yeah, it's very sad.

So, um, but on a lighter note, we might have one more video.

Oh, we do.

We do.

Yeah.

Okay. How to avoid paying taxes legally. Every one of these is going to give me the issue.

Oh, is this Lewis Howes here?

Yep. I'm spending like $400 grand last year just to live in LA on state tax.

$500 is a way around it.

Tell me.

I learned about this after I already left California, but to my understanding, there is a way to run it through the business. You pay it through the business, and that way it's deductible on that level before you take a salary.

I'm gonna have to look this up.

I think it's a gray area as far as I'm concerned.

I don't know if I should probably do it then.

Unfortunately, the more I get into like taxes, the more I realize that the whole tax system is a gray area.

Very gray.

It is insane, and everything is open to interpretation, and it's like, how well could you Argue your case. It's like whoever has more money could learn these gray areas and hire the right people to do it correctly in such a way that's like compliant. It's insane, dude.

I love how they're showing Donald Trump there. Yeah, he's like, "Oh, that's rude." I mean, that was a very interesting statement that he made there. I mean, he says just run it through the business first and then pay yourself a salary.

So simple.

It's so simple. I mean, my first question to him be well. Run what through the business first?

Don't worry about it.

Real estate, real estate, real estate.

Yeah, here's a briefcase of cash. I need you to run this through the business.

You know, my advice, stay away from the gray area. You know, just do everything the right way. And there's ways to lower their taxes that are legal.

There's legal ways to lower your taxes. It's better safe than sorry. One of the sayings that I love to live by is pigs go to the market, hogs get slaughtered. So be a pig, just don't be a hog.

Ah, there you go. I like that.

And as long as the expense, you can prove that it is, like I said, ordinary and necessary for the business, then it is a legitimate expense, you know. But yeah, just don't get crazy. I mean, I mean, I had a client the other day who asked me, he said, I'd like to buy an Hermès purse for my wife. Can I just put that through the business? And I said, well, your wife doesn't work in the business and she doesn't do anything with it. I mean, they don't even post pictures of her anywhere. So I was like, why does she need the Hermès bag? Like, why? Or not her, but why does the business need the Hermès bag? And he goes, well, it doesn't. And I said, then—

There's your answer.

I'm not telling you to put that in your business. It's not an expense.

That reminds me, my daughter's first year in the business as a real estate agent, and she called me one day. She goes, I just bought some new clothes and stuff. Is it okay if I write that off? I go, no.

It's like, really?

Yeah.

Yeah.

Yeah.

Oh, and I bought a purse too. Yeah.

If she's an agent and that's your business, you could argue that. No.

No. Yeah.

Oh, come on.

No, no.

I mean, you have to be like a police officer, somebody that's required to wear a uniform.

Well, somebody told me if you're making videos, what you're wearing is a prop. Therefore, the watch, the glasses, the clothes, it's a prop.

Have you been wearing that all day?

Yeah.

Okay, so it's not a prop. Well, at least not this, but when I have—

Joe is my favorite student and he's totally correct with this. So, um, so the way they say it is if you can, if you are wearing that in everyday life as well and it doesn't look funky, like a car mechanic, you know, the little jumper outfits that they wear.

Okay.

Yeah. That's a uniform that can be written off through the business. But, you know, my, my boots and outfit, even though we're here on the podcast and I needed it to—

Yeah, it's a prop.

I mean, if she changed and left with a different outfit, Then maybe, but no.

Sorry.

My favorite one is I did have an agent that came to me, his first year coming to me as a client, and he was getting weekly facials and he wrote them down as an expense. And I said, facials aren't really a deduction. He goes, well, I have to look good. And I was like, well, so do I, but it's not a deduction.

Yeah, see his problem?

While he's laying there getting a facial, Show, he should have said real estate, real estate, real estate. You know, if you're discussing real estate, you'd be fine.

I mean, you know, maybe if he was getting the facial while showing the home on YouTube or something, you know, and saying like, oh, look how relaxing this house is. I'm getting a facial in this very, you know, relaxing room here.

Oh, don't put—

don't put IDs. This is why it's good to have Natalie on your team.

I could do this.

That's good. No, we're kidding.

Yeah, just kidding. Your weekly facials, no.

We're kidding.

That's funny. People get creative though all the time. I mean, they try. Even though, like I said, the TikTok videos drive me a little nuts sometimes, it's very interesting to hear what people come up with.

Yeah.

Yeah. I mean, the world is innovative. I will give them that.

Right. It's like, are you willing to put your audit on the line basically to like test out your theory of creative tax?

Loopholes.

Exactly.

Yes.

Well, how can, uh, if people want to work with you and your company, what's the best way for them to get a hold of you?

Uh, the, the best way for them to get a hold of me, well, first of all, you can always visit, visit our website, which is calproaccountants.com. Uh, our main office is located in Irvine, California. You can call us anytime at 714-669-1172. I am also on Instagram, so they can follow me at @ennemythecpa. We post a lot of tax tips on there and business advisory tips. And those are the 3 best ways to get a hold of us right there. So you can even input your information on the website and request a meeting that way as well. We do give free consultations to anyone who's interested.

Amazing. We got to get you at the meetup.

Absolutely. Actually, I think I may go on Monday's meetup.

Perfect.

Yes, I will go.

Thank you.

Yeah, absolutely. I will be there.

We'll look forward to seeing you there. I'll teach you how to flip a house in less than an hour.

I know. Yes, I love it. I, I mean, hey, in an hour, I love that.

Okay.

Yes. And you should—

Well, the meetup is 3 hours long, and the first part is networking, the middle part is me speaking for an hour, and then the last part is continued networking.

Hey, I love it. I can be there for all 3 hours.

Oh, perfect.

There you go.

So if you'd like to just see me at the meetup, Yeah, I'll be there.

Okay.

So I think, I think we do have to come up with the YouTube video of flipping a house in an hour. Yeah, because that's what I picture every time you say that.

Yeah. Oh, it's actually an excellent name. I, I love that. I love that title.

So it's clickbait.

Well, or you could do where they say like—

I don't know what that is, but he says it is.

Yeah, yeah, yeah, that's true.

Yeah.

Or you can flip a house and then make it shorter.

I don't know.

Okay, some people do that. They'll put it like 24 months in 5 minutes, and then you watch it like all sped up.

Oh, there you go.

No, no, this is actually teaching you the mechanics of flipping. Yeah, in an hour.

I think that's great.

Yeah, did I say that? In an hour?

We're just gonna take everyone who shows up to the meetup to a house, give them a hammer.

Yeah.

And we'll flip the house in an hour.

Yeah, remember what's the Helping Hands or the charity where they have everybody like Push the thing up and you'd hammer the house.

Perfect.

What's that called?

Yeah, that sounds good.

Is that the Habitat for Humanity?

Thank you.

Yes, yes, yes, you're right. Yeah, they build houses in like 3 days.

Yeah, see, get enough people.

Yeah.

Okay, so, um, are we good?

We're good. Yeah, that was so much fun. Thank you so much for being here.

Thank you so much for having me.

I hope everybody got some information that they could use, and if you need some more help Reach out to Natalie.

Yeah, yeah. But before we go, we need to write off all this stuff. And so what do we say?

This is all real estate, real estate, real estate.

See you guys next week. If you want some more advice on real estate investing, reach out to us one on one.