(Ep. 46) Real Reason Why Rich People Pay Less in Taxes – Tax Planning Tips & Tricks with KC Chohan

Today we have a massive episode for you. We're sitting down with Casey Chohan, founder of Together CFO, and a brilliant tax expert for the ultra-wealthy. Later in this episode, Casey is going to peel back the curtain on how the top 1% handle the biggest expense in their lives: taxes. Forget simple loopholes; we're talking advanced charitable structures where you quote. Own nothing but control everything. Whether you're an entrepreneur scaling your business or a W-2 employee feeling stuck in the rat race, KC drops absolute gold on how to protect your wealth and what a digital US dollar means for your future. Trust me, get your notepads out, you do not want to skip this one. Let's dive in. Welcome back to the Ideas by Mike podcast. Uh, got a very special treat for you guys today. Casey Chauhan is with us. He's the founder of Together CFO, uh, who has a decade of spirit of experience being not only a fractional CFO, but really a tax expert to ultra-high net worth people. So Casey, welcome to the show today.

Thank you so much for having me. Pleasure to be on.

It was so good. I mean, I, you know, we often, I often tell people when they come on, you know, the real nuggets are found in the pre-show. Like when we are just like getting to know each other and talking about what we're going to do. And we, at about 10 or 12 minutes in this, we're going to get into a strategy that we talked about, about how you're helping people save a lot of money And it's benefiting charities along the way too. But before we get there, let's talk about like what makes you one of a kind. Tell us your background. Tell us where you're from, uh, how, and how you got to where you are today.

Yeah, as you can probably tell, I'm not from America. The accent is from England, northeast of England, born and raised out there. I was working with a big Fortune 500 company called Flowserve, a big engineering company, do pumps, seals, and valves, about billion in revenue, and I worked up the ranks. So I was working straight from making cups of tea and coffee for the bosses to having a region of myself. And then I transferred from the European region over to North America region, did another 4 years here. So 8 years in total for the company. So it was a total corporate guy, knew how a big corporation, a $4 billion monster, works from the inside of the finances. And what made that really efficient and inefficient. I then got my green card, left, and started my own business together, CFO, where we specialized in fractional CFO services for smaller businesses, helping them understand their financials, everything from raising funds to optimizing their numbers. And we had a really big success with one of our first clients. We helped him go from $5 million a year to $120 million a year, and that's what created a huge tax problem for him. And then he set us to work to save on that, which again was completely outside my comfort zone because I'd only been a W-2 employee and then an entrepreneur, and I didn't really know anything about taxes at that time.

Well, we're going to come back and talk more about that initial first client story. in a few minutes. We say that taxes are the biggest expense people are going to face in their life. Always. Yep. And it is just a truth that when people sit down and they realize it and they analyze it, it makes people really uncomfortable. People in the financial space, the financial planning space, financial advisory space, investment management world, they they quibble over like, should I use Vanguard or should I have a managed account? And that, you know, we're talking about the difference in like 1% in fees, but we know like as tax planners that, you know, the real savings comes from taxes. So, but not the bigger strategy, what you're known for. What are some things that, you know, that entrepreneurs and just individuals miss in the tax code that just seem, it seemed like Seem like they're everyday to us, but not so everyday to the common folks.

Yeah, I would split that into 2 sections. So on the first section, I would call that the loopholes that everybody should be using, but not many people are using, which is exactly what you started with. And then on the more advanced section, I would say structures over loopholes because loopholes can move the needle a little bit, But if you have the right structure in place, you can move the needle significantly. So it all depends on what your net worth is, how much you're actually making, whether you need a little movement, which makes a big deal for you, or if you're a multi-7, multi-8-figure business owner, you need a proper structure. So on the loophole side, it's simple things like hiring your kids. You should all be doing that. It's very simple. You can rent your house back to yourself for 14 days a year, the Augusta Rule. You can use professionals like yourself to manage those funds and put them into self-directed IRAs and retirement accounts and things of that nature. Use insurance. There's lots of different loophole-level incentives. Again, the bigger ones would then be the depreciation schedules. It's changed now with the new establishment, so you could Bonus depreciate, accelerate depreciate. You can get into real estate and do conservation easements. There's, there's so many different things you can do at a loophole level that are very cheap or relatively free, and it's just an awareness issue. And then for the top 1% of people on the structure side of things, the more advanced side of things, you want to be making sure that you're set up in the right way with the entities, holding companies separate. And then if you want to get a really advanced look at charitable structures as well, because you can save anywhere from 30% to 60% if you get into those advanced savings.

We didn't talk about this in the green room before we talked, but I'd love just to get like maybe your hot take on a couple things before we go into how you're helping people today. You've been in the tax world in the United States for long now, a long time, right? And we see that tax rates are at a discount, maybe not the lowest they've ever been, but pretty close. Like, what do you think taxes will be in 10 years, 20 years in the United States?

I think they'll continue to keep growing. I think the way that the government is structured with the massive amount of debt that can never be repaid, And the way the economy's going, unless something drastic happens where, like, we've seen that start with, with Trump and the tariffs right now, and there's talk of the IRS being abolished, and there's a whole— it's probably been the, the most unsettled it's ever been since inception right now, I would say. But I think generally speaking, the government's biggest source of revenue is from the people. And the IRS is a cash collection machine for that, but it's never going to be able to collect enough to balance the books, right? So if we look at the $38 trillion of debt right now versus the $4 or $5 trillion that come in every year from the taxpayers, there's such a huge gap that regardless of if taxes were even at 100%, it would still never cover that gap. So it goes— in line with a few different things. If we're getting like geopolitical and geoeconomic, uh, the cash value of money, the dollar declining, printing as much currency as, as you want pretty much over these last years since the, the pandemic. There's been, I think, over $6, $7 trillion printed, the most ever in history in that space of time. So that devalues the currency more and more as well. So I think there's going to be a huge shift in that mixed with crypto, whether that's whatever switch they make. We've seen it switch from gold-backed to not gold-backed. I think we're going to go from now military-backed, let's call it, and government-backed to crypto-backed. How they do that, still again up in the air. But I think that there has to be a change in the way the currency is right now because Other countries globally can't handle the fact that we are just printing trillions of dollars with no backing. And you can see that by the central banks taking back their gold reserves and not buying US bonds.

It's interesting, you know, when we went from gold back in '70, whatever, 1970, whatever, with Nixon, when it's interesting that you call it military-backed. Because that's really what our dollar's been backed by is that is, they call it the good faith of our, of the US government, but it's really that we have the strongest military in the world.

We're the biggest bully on the block. Right.

Right.

But then when you put other bullies together, like China and Russia getting together, you then no longer become the biggest bully on the block. So it, I don't know how it all plays out.

It's that whole playground mentality, right? When we take, taking us all back to we're 5 and 6 years old and the kid, The third grader is taking the kindergartner's money, right? But now the kindergartners have gotten all together, right? The growing economy. And they're like, wait a minute, maybe we shouldn't be using the dollar as a reserve currency. Maybe we should be looking at the other options.

Well, we're seeing that with the BRICS nations getting together and building their own payment system. And now the Chinese are bailing out all of the Africans and everything's going onto a digital yuan. So anyone who's looking at this from a global perspective can see that the writing's on the wall here. Yeah.

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You, uh, you're, you're very forward-thinking in how you're, you know, how you're answering the questions. I love that. Um, do you, do you see Do you see a time coming up where Bitcoin or some other currency is going to be accepted as payment for taxes in the United States?

Yes, very, very soon. I think we'll see that really, really quickly. And it may not be Bitcoin to your point, but it will be some digital equivalent of. It'll probably be a US stablecoin if I had to bet on anything. And that will be the new equivalent of the dollar. And I think that will happen over the next 3 to 4 years if I had to put a timeframe on it.

So this is, guys, Casey Chouin here is, again, he's built Together CFO as a company over the last decade to be able to help a lot of entrepreneurs and business owners 7, 8, 9-figure business owners not get out of the tax system, but pay their fair share because we know that the IRS system is, like he said, full of loopholes. And if you properly structure, you can get there. I guess the one thing before we get into what you're doing for high revenue-producing business owners today, Go through us, go through a little bit about like, if you are a W-2 employee, like what type of structure you have or what kind of things you could do in the tax system to lower your taxes versus being an entrepreneur. Because you've been both. When you first came over to the United States, you were a W-2 employee. Now you own a business. So talk about the differences between being a W-2 employee and In running your own outfit?

Yeah, it's so difficult. As a W-2 employee, you are firmly in the rat race and you're so deep into it, it's hard to come up for air. The, the best piece of advice I could give a W-2 is to start their own business and try and get out of that W-2 because there's no real incentives or there's not much you can do from a tax optimization standpoint. To reduce that down. Now, at an AGI level, you can still do the structures that we'll talk about in a second, but it probably doesn't make much sense because of the income level. Generally speaking, there's only a handful of W-2s that make 7 figures, multi-7 figures, and they're going to be athletes. They're going to be high-paid physician specialists or really high-paid lawyers. there's not really many others unless you're in tech and you're some like guru at Google or Apple that you may be in that bunch, in that category. But generally speaking, the vast majority of W-2s are going to be making like the average salary in America as well, $60,000, $70,000.

Right.

It's going to be in that region rather than the multi-seven figures. So I would say the simplest, easiest thing that W-2 could do is set up a private foundation and you can donate up to 30% of your income into that private foundation, and then you can invest those funds in the name of the foundation tax-free.

All right, so now let's get into charity, charitable giving, charitable causes, and how charity plays an impact in the tax code. And so you have, you, you, we talked about earlier, you found one of your first clients, you found a lot of structure and a lot of tax savings from that. Walk us through, without giving names, of course, or details, just give us high level, like how you found this client, you know, the makeup of this client, and then walk us through the structure that you found. to be able to save multiple, multiple percentage points on the tax side?

Yeah. So to start off with, to give enough context, the client was in the medical marketing space making $5 million a year. Good business, good revenue. Everything was going fine. Then we bought the next vertical along, which was a lab that could process the marketing that he was doing. And then that was crazy because it went from $5 million a year to $10 million a month, first month, month one, because he bought the right type of business that already had the right certificates in place that could run XYZ tests. And now you cash flow in ridiculous amounts of money that you can't even believe, right? So $10 million a month, which creates a huge tax burden. The way that we figured it all out was we got a lot of help from family offices. My background with Flowserve, the company I worked with, was head office in Dallas. And we've got— I got connected with some family offices that had similar structures. And long story short, after a lot of schmoozing, and breadcrumbs given along the way, I pieced together that this is what they were all doing. And the long and the short of it is the tax code clearly lays this out. So if anybody wants to go read through 80,000 pages of dry tax code, it's all there on the website, uh, irs.gov. Away you go. But if you want the shortcut, I'm gonna give you it right now. Uh, generally speaking, they want you to do donations, right? And it can happen in different ways. You can donate cash, you can donate assets, you can donate different percentages of your AGI depending on which threshold you meet. So the scenario that we'll use is that you can donate up to 50% of your AGI any given year, If you are donating business shares, privately held business shares, this is not stocks of Apple or anything on the publicly listed stock exchange. This is Mike Mill LLC number 1, and we're donating, we're getting the valuation of it. So you have to get, depending on, let's assume it's over $5,000 because that's a threshold. Anything over $5,000, you have to get an independent valuation of. To meet all of the IRS requirements. And then let's just say that valuation comes back at $100,000. You can use that against your AGI. So if your AGI is $200,000 or more, let's just call it $200,000, just so we easy math. You can donate up to $100,000 of value into that charity. So a private company into a public charity, 501. Again, they're all listed on the website, and that's a donation deduction that you would take at the AGI level. Any questions on that first?

So like, if we, if you, if you give your company to charity, okay, who maintains control of the company?

That's what we're getting to next. That's a great question. So if you use the right structure, back to what we said earlier, right? It's all about structures. You could use a limited partnership as the entity type of partnership. And that means you have at least 2 partners. One is a limited partner that has no power, no control, the equivalent of a silent partner. And the other is the general partner, which does the day-to-day activities and controls the assets of that company. So you can be the general partner of that entity and a nonprofit could be the limited partner. as a silent partner. So you can donate, let's say, 99% of that entity to a nonprofit, and you could be a 1% owner. So this is the difference between ownership and control. We've heard Rockefeller say it a million times, right? Own nothing, control everything. This is a way to do that.

Right.

So at the ownership level, you would be 1% owner, a nonprofit would be 99% owner. But at a control level, a day-to-day level, you would be general partner with 100% control and the nonprofit would have zero control. That's how we would do that.

And when we talk about control, just so we can lay this out, right? Control is budget, spending, assets, employees. It's everything.

You are literally the heartbeat of that company. Control the bank accounts, whatever pretty much you say goes. Again, it's all written out in the operating agreement. So you've got to make sure you have a really strong operating agreement. The T&Cs are all there, but generally speaking, you can give full power to the general partner to control that entity, but the voting rights would stay in proportion to the ownership. But you don't have to have a vote on everything if the general partner is in control of day to day.

Right.

So it's again, you— there's been a lot of people that abuse these systems as well because they don't understand the semantics of them. And it's really, really important to know that, hey, you can't just donate an asset and not give control as well, because then the IRS will come knocking and they'll be like, well, you've kind of fakely done this donation just to benefit yourself. And that's not what we're doing. We're giving all the voting rights with that ownership, but the general partner will decide when there is a vote or if there needs to be a vote. So again, really having good documentation and really understanding how that game is played to make sure you follow all of the requirements that again have been set out for us.

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Yeah, all day long. So firstly, in that scenario, We are seeing that more and more every day with the boomer generation that is retiring. It's probably the biggest influx of client avatar that we have is that, hey, my kids don't want this business. I don't have any kids. What am I going to do? I'm comfortable, but I don't know, how am I going to live? All of these question marks are around that. So yes, the beauty about it is if your AGI isn't that high and the value of the company, like An accounting firm is 1.5x of revenue. You usually are in that ballpark, 1 to 1.5. It's not a lot of money when you look at, hey, I worked my whole life to build this business, or I put X amount of years in it. And people are emotionally attached to that because it's their second baby, right? Um, yes, that would be a great avatar to then let's say, okay, let's look at this business. Let's see how much cash is generating. Do we want to put Option 1, let's just run it as a cash cow. We'll bring in a management team that deals with the day-to-day. I can step back and kind of just enjoy the fruits of that. That could be one option, right? Then if I do want to just completely wash my hands of everything, I could sell it or donate it. Then yes, I could donate shares of that entity after I got it valued to a limited partnership. And that limited partnership can be owned by a nonprofit or whoever, um, that is tax-exempt, so doesn't mind getting a K-1 at the end of the year. And that would be a great scenario, but again, it wouldn't really change too much of the day-to-day operations for that person, right? So what we need to be really clear on is understanding, hey, what are your goals? Are you wanting to time out in 1 year, 5 years? How much cash do you need to live comfortably? Is there any health conditions? Because again, all of those factors play in whether you need a special medical trust, whether you need certain things in place because you're not in good health or you are in good health, so you're not worried about them, or you're going to move to Puerto Rico, so it's going to be sunny and shiny and medicals a lot less, right? There's lots of different factors. So I think the first thing that we always do is try and understand what the long-term plan is, if there is a long-term plan. If there isn't, we create one because ultimately it's not really about us. We're going to give you options, but really it's about your vision and what you want to do with it. And we may not even be the right fit. I would say about 60, 70% of the time we're turning clients away because we're not the right fit for what they want to do. We only serve a very, very specific section of the market, which is the top 1%. So for the other 99% of people, we refer them out because we're like, we're not a good fit for what we do. Maybe do these 10 things first. And if it's still a problem, come back to us. And the amount of people that come back, I'm so surprised. And they're like, oh, you told us this a few years ago. And, you know, now we're there. And I'm like, oh, wow. That's like, that's That's what's best for them, right?

Casey, I got 2 more things before we wrap up here. So first thing is, do you see a lot of tax scams out in the marketplace?

Yes. So many. There's lots of them. And especially with the things that we do with kind of the more advanced planning, people tend to push boundaries even more. So I see all sorts of crazy stuff. And then on the side that we see it is normally that a person is just a business owner and they're like, hey, I didn't know what was going on. I took my eye off the ball. I've got all this big mess, or I've got these letters coming in. I don't know what to do. What does it mean? And then we kind of try and decode in plain English what that means for the client. But yeah, there's a lot of crazy stuff out there and there always will be. There's always going to be people that push to the boundaries. And to one degree you can see why when the IRS come out and say that tax is a voluntary system. And then on the other side, there's no real black and white definitively on what can be included as a business expense versus not. So let's use yachts and jets as that. Prime example is, is that a business necessity? Depends, right? There's no real clear yes or no. So as long as you have all this ambiguity in the tax code, you're always going to see people push the needle until it's cleared up.

Have you heard about the Roth conversion technique going around now where like you put your traditional money in a self-directed account, you buy a business with it, you discount the business, and then you convert the Roth, and then you reverse engineer that back. Have you heard about that one going around?

No, I haven't heard about that, but that mechanism or part of that mechanism I've heard about with what we do with the charitable giving. They donate the shares to the company and then they devalue them and buy them back. So the mechanism is semi-similar. Again, if anyone's putting something out there that's too good to be true, it probably is too good to be true.

So be careful. That's where we see this one. Like we've seen like discounted valuations happen, like in family limited partnerships, right? For estate mechanisms, for even like what you're saying for income tax mechanisms. But just as a warning for like our listeners, if you find yourself in one of these and the IRS finds out about it 2, 3 years from now, who's on the hook for when the IRS comes? Is it the person that showed you the strategy or is it you, the individual?

Both. So firstly, you are responsible. You were the one that signs the form. You put your signature on it. Don't sign anything you don't understand. You're 100% liable for that. And then secondly, if the IRS wants to go after the promoter of that structure and they're calling it a shell or, you know, some kind of scheme, then if they've got a big enough case, they usually— a separate force goes after that person. But that's, you know, by that point, you're so stressed out about your own well-being in terms of, hey, what do I do? How do I undo this? How much penalties? How much fees? How much interest? On top of all the fees that you paid to set it all up, right? So it's it's something that you should really understand before you sign on any dotted line is hey, what is the structure? How is it operating? Have I read all of the documentation? And again, who's going to read through 300 pages of small fine print in these 401s and Roth IRAs? I know I've blindly signed on stuff like that. You just assume it's all. standard T's and C's, right? But ultimately you're on the hook for that. So you got to make sure you understand what's going on.

So Casey, you're wicked smart. Obviously it comes through that you are. What do you do in your spare time?

Read. I read way too much. So random things. Again, I'm from England, so I've got an international outlook on life. I like to see what's going on all around the world, not just here in America or in Beverly Hills in my little bubble. But to see geopolitically what's going on and trends of what's going on, both in the markets for investing. And then also I invest in a lot of startups as well and angel invest as well. And I have a 2-year-old, so he's been consuming a lot of my time. So that's the best way to spend all of my spare time. So yeah, so keeping busy. I love traveling. I love food, golfing. So all the fun stuff.

That is great. We do, the Ideas by Mike podcast is here to do, to be educational in nature, but it is also here to connect people who see and have questions about maybe strategies they haven't thought about before. So if our listeners wanted to reach out to you to maybe see if, first of all, if they're part of this 1%, they're a business owner, maybe even a high W-2 earner making that million dollars, right? That doctor you talk about. How can they reach into you to see if there's anything you have to help them lower their taxes?

Yeah, the easiest way you can set up a free consultation with our team, that's togethercfo.com is the website. You can set up a free call on there or any of the socials. If you want more information, got loads of YouTube videos out there. that you can watch, learn, educate. We've got a private school community. It's completely free as well. So that's skool.com/tax. And again, just trying to offer education and options for people because you don't know what you don't know, right? So you need a really good team around you to elevate you to that level and being proactive. And anyone who wants to learn and get better and save more money on taxes, we're happy to To give you more options.

I love it. You know, my saying is taxes are the biggest expense you'll ever have in your life. Do you have any sayings like that about taxes?

Yeah, I say it's not how much you make, it's how much you keep that's really important. So if we can help you keep an additional 50%, and then you can use someone like Mike to help make that 50% grow in a tax-efficient environment, you get to play with the wealthy then. And that's really the difference between being rich And being wealthy is when your money is making money. And if you can do it in a tax-optimized environment, then you compound wealth.

Well, Casey, that was a great way to end. Thank you for being with us today. For those who routinely listen, you know to like and share the podcast. If you want more information about what we do at One Oak Financial, go to oneoakfinancial.com. That's the number oneoakfinancial.com. And most of all, you are one of a kind. And I just want you to believe that over and over again. And if you are truly unique and you know that, you deserve a one-of-a-kind financial plan with partners like us at One Oak and Casey at Together CFO. So until next time, this has been Mike Milligan with Ideas by Mike Podcast. Thank you for logging in and listening or watching to another episode of Ideas by Mike. If you want to learn more about my firm, One Oak Financial, please visit us on our website at www.oneoakfinancial.com. That's the number oneoakfinancial.com. If you enjoyed this podcast, you could help me by liking it, subscribing to our channel, and telling others about what we're doing. See, guys, we're looking to change the game, and that game is about making financial planning more about you. Until next time, this has been Mike. CFP Board owns the marks CFP, Certified Financial Planner, and CFP in the United States. As a reminder, Mike Milligan, Certified Financial Planner is an investment advisor representative of Advisory Alpha LLC, an SEC-registered investment advisory firm. All opinions expressed by me or our guests are solely our own opinions and do not reflect the opinions of Advisory Alpha. This recording is for informational purposes only. It should not be relied on for investment, tax, or legal decisions, and it's in no way intended to communicate or guarantee specific performance or suitability of any security, instrument, or product as we may have discussed. Investment advisory and financial planning services offered through Advisory Alpha LLC, a registered investment advisor. Insurance is offered through Ideas by Mike, a Virginia-based LLC here to serve you in all 50 states and the District of Columbia. Ideas by Mike is a separate and unaffiliated entity of Advisory Alpha LLC. While tax and legal issues may be discussed, in the general course of financial and investment planning. Advisory Alpha does not provide tax or legal services. Please consult with your tax or legal professional prior to making a decision relative to those decisions. Any and all statements of purported or observed general practices of non-affiliated firms and advisors or conditions of the broad financial services industry are solely the opinions of Mike and are not intended to be offered as factual. The validity of these statements has not been verified, and as such, no representation of their validity are made. An annuity is a long-term financial product designed largely for asset accumulation and retirement needs. All guarantees are backed by the claims-paying ability of the issuing insurance company. This podcast is produced in conjunction with Mike Milligan, LLC. Thank you again for joining us today. We'll see you on the next podcast.