THIS VIDEO SAVED ME $180K IN TAXES

What's up, everyone? This is Mike. This is Brad. Brad Drayer. He is the CPA that has partnered with me on homeservicecpa.com and for a long time we did lawn care, bookkeeper.com. we allowed people to do bookkeeping. We could do your payroll, but we never could do taxes. We can never do tax strategy, tax planning, as well as running your tax return. However, that has changed because we have a CPA in the house, Certified public accountant. And so we need a CPA to have a CPA firm. And so we are officially a firm because Brad's on the team. And so today we are going to talk about five strategies to save yourself on taxes. Now, I don't know what they are Brad has written down and in his head. And so I might actually ask him some questions that I don't know about because I like to save money on taxes and I'm in the process of using some of them now. Both my real estate. Cause I sold a ton of it back in 2022. And so taxes are fun. I enjoy taxes. I enjoy trying to get around taxes. I enjoy trying to have a strategy around taxes. And everyone that was making profit should have a strategy around making taxes. And if you're not thinking about taxes, you're not thinking good thoughts. So without any further delay, we're gonna go ahead and kick it off. Brad, you're no stranger to the channel. People know who you are. But maybe give a quick synopsis of home service epa, what we've been up to recently and then we'll jump right in to the tips for saving money on taxes.

Sure. Yeah. So with home service cpa, we launched that back in, I believe it was October, October, November of last year and kind of started getting rolling with some of the kind of tax strategy, tax preview calls that we're going to make, making kind of standard for all of our clients, for all of our clients going forward. But yeah, we got got that hooked up and started and certainly somewhat of the target audience has been or a bulk of the audience thus far, I should say has been with the Augusta franchisees since we didn't really have a good outlet for them all to kind of come to for their tax needs, but certainly made it available publicly, you know, as well. And yeah, just certainly get more traction on the public side of things as we go along here as well. So cool. It's been fun.

The five we're talking about today, I'm assuming, are some of the recurring themes you've seen as you've been doing. We've been done dozens of other business owners, so let's jump into those and then I'll kind of bounce ideas or thoughts off of those if I don't know about them, ask more questions, things like that.

Sure. Well, yeah, the one at the very end, I haven't really seen it too much before. It's only been in place for about not even four weeks now. Mike.

Oh, let's go.

So, yeah, it's a huge, huge impact in my mind.

Let's go. All right, let's kick it off.

Yeah, that's coming up. Coming up at the last. Save the best for last.

Let's do it.

But I guess the first one that a lot of people are basically kind of paying attention to, they kind of know what's out there, but not sure if it's right for them is just a simple matter of becoming an S Corp. And certainly kind of. At what point does that start making sense, you know, to, you know, at what point does that start making sense where I can actually save more on my taxes than it's worth, you know, doing the actual extra return and so forth? On that front, that calculation has gotten a little bit more difficult in the last little bit, partly in view of the qualified business income deduction that. Because that applies to both LLC and S Corp. But the kicker there is with S Corp, it only applies to your net income. It doesn't apply to the, to your wage amount when you're an S Corp. So it's still. It doesn't swing the bar that much, but it certainly is a consideration, you know, with that qualified business income deduction there as well. But typically what we see overall is generally speaking, I generally look to go toward S Corps, maybe when you start hitting the 60,000 ish range of net profit, of net profit for the year. Because in essence, where it becomes, becomes something that's worth looking into. Right.

And so the reason it's not worth doing it from, from, say, any profit is because there are extra costs in running the extra tax return. You're usually gonna, if you're gonna actually become an actual S Corp, you're going to have to, you know, file with an attorney. In terms of articles of incorporation, there's a little more legal side of things.

Correct.

But is the biggest drawback of an S Corp really just the cost of doing an extra tax return versus just doing a Schedule C on your, your personal tax return?

Yeah, it's pretty well just the cost of that extra tax return. There are a couple more things on that return that you have to kind of disclose from an information standpoint mainly a lot of it is going to be like some of the balance sheet items, you know, kind of reconciling with the, you know, your book depreciation versus your what you've taken for tax depreciation and a couple other different items on the balance sheet there. But provided that your books are in order, you know, it just kind of becomes a more of an informational disclosure at that point. It's not too much.

Not too more cumbersome I should say from that point. But you do have to have all your ducks in a row a bit more with an S Corp as opposed to that. You can be a little willy nilly with the llc, but you don't have to disclose all the balance sheet information with the llc.

So so like a misconception I typically see is like an LLC versus an S Corp. Some people are like, well an S Corp I can be, I have like a corporate tax rate. And I think that some people just get it confused with a C Corp, which is typically what you'd see on like a publicly stock public stock exchange, 100 plus different shareholders and, and totally different way you have a corporate tax rate which with an S Corp and llc they're both just pass through entities which means any profit in the business is going to get taxed. It's just whether or not you're going to be taking a salary which is necessary for an S Corp. And like you were talking to one of the franchisees Today, they made $100,000 in profit. But they can't really switch to an LLC right now and file a form 1120s because they never gate took that gave themselves any W2 income or any wages throughout 2022. So if someone is listening to this, they made a bunch of profit, they want to now file a Form 1120s which is allowing you to now be able to kind of go back last year like hey, actually I'm going to be taxed as an S Corp instead of an llc. You can file that with your, your accountant and you know, switch over to being taxed like an S Corp. But why can't you for this, this sake of this individual just like hey, I'm an S Corp and I'm going to pay myself last year for you know, $40,000. Why can't in the last year and do that? Is it because you have to take the wages in that year?

Correct, you have to take the wages and the salary basically in, in the calendar year.

Got it.

So, and obviously at this point, you know, payroll's been closed.

Got it.

And W2s have been issued and so forth like that.

But yet the form 1120s can still be filed all the way up until the time that you file your. I heard a date. I was next to you. Like you said, you can go back three years, right? Right.

Yeah. You can technically. Yeah, exactly. You can technically go back three years and make the S Corp election. That's cool. But yeah, it does get a little bit hairy if you've, if you had already filed, you know, the prior year returns like for two years ago and three years ago. Yeah, yeah, it's doable. But it does take quite a bit of work on the CPA's end to go back and to go back and do it that far back.

But in theory is someone with an LLC that was. Could go back and File A Form 1120s become an escort, but however, they can't pay themselves the salary.

Exactly.

Got it.

And what I was talking about today was in that situation, the.

Yeah, that particular company, they had not become, they had not made an S Corp election but they were paying themselves on payroll throughout the year as well. And it was a reasonable salary amount.

Which means now they can do the 11.

So now you can still. Got it. Go back and you know, file as an S Corp and be able to do the 1120s. So it's technically a late election in terms of making the S Corp election. But it's, it's really not too difficult if, if you're working with a good CPA that is, it's a, it's not too difficult to be able to make that election kind of after the fact because standard, they want you to make it by March 15th of the year that you're electing to become it. That's standard. But you can certainly make a late S Corp election. You just have to provide reasons why.

Cool, we'll move on to number two. But why in general would you want to switch from an LLC to a S Corp? It costs more to file. You have to do a tax return. Sounds like it's headache in the brain. But what is the savings that you start to see once someone crosses 50, 60,000 in net profit? Bottom line, what, what is the savings of going from an LLC to an S Corp?

Yeah. So generally speaking the biggest savings, what you're saving is that self employment tax which is basically 15.3% and it's actually the same, you know, it's the same percentage that comes out with W2 employees and payroll, you know, with The Social Security and Medicare, you know, with paychecks, the employees paying half, the employer is paying half. Those together total to that 15.3%, which is what the self employment taxes. The difference there is, if you're making $100,000 a year, you're only going to pay that 15.3% on the salary that you take out of the business. You know, so of the, you know, of whatever that reasonable salary is. Whereas with an LLC you're going to be paying that 15.3% on all 100,000 of that income.

Got it.

So say that you take a reasonable salary of $60,000 a year.

Got it.

You're now saving 15% on that other $40,000 of income.

Gotcha. Okay, so you're only going to pay that 15% as an S corp on the W2 income. The rest of it is not going to have the self employment tax tacked on.

Correct.

But you're still going to pay income taxes on that.

Yep, got it. Yep. You'll still, you'll still pay income tax on that. And actually with an S corp you'll pay slightly more in income tax just because you won't be able to deduct. You know, with LLC you can deduct like half of the self employment tax and then the qualified business income deduction with section 199A ends up getting a little bit smaller with an S corp as well. So it does hurt you just a little bit on the income tax side. But typically we can get to that point where the savings of the self employment tax far outweighs the hurt from the additional income tax.

Got it. Last question. For someone is an llc, they're making good profit. Is there any difference between paying yourself more on W2 versus just taking distributions or as an LLC is all basically going to be taxed the same way anyways because you're not an S corp, you're still going to pay 15% like you said, on whether it be distributions or W2. Does it basically not matter at that point then?

Correct? Yeah, it does not matter for an LLC because you pay tax on the overall profit of the business. Got it. So whether you leave the money sitting in sitting in the business account or whether you venmo that to yourself whenever you need it, or you take a set $500 a week or whatever it is, it doesn't matter when you're an LLC because it all gets taxed the same.

So now let's take an S corp. Now I am paying myself a W2 income. I'm having to pay that extra, those extra taxes on that W2 income. The advantage now is that I don't have to pay that 15% self employment tax on all the other profit in the business. Should I take that rest of that money out as distributions and then that just gets taxed at my nominal tax rate? How does that work? Because obviously there's benefits here. But how is that getting taxed the money now that is not my W2. There's still profit in the business. If I take distributions, I just move money from my bank account, my business checking account, to my personal checking account. What's that look like? Is that going to be considered what, on my tax return?

Yeah. So that, that operates similar to the LLC in that regard in that taking money from the business account to your personal account does not trigger. Trigger a taxable event. The, the difference though is remember with an llc, you're paying self employment tax and income tax on. On all of the income. Whereas with the S Corp, you're only paying the income tax on the. On the income that's above what you take as a salary.

Gotcha. Gotcha. So then that's why people want to have as small a salary as possible. Because anything else above that, distributions they're taking, they're only paying income tax on, not the 15% self employment tax.

Correct. Exactly.

Got it. And it's got to be a reasonable salary.

Unfortunately, that's where the IRS says it has to be reasonable. And then they, they leave it up to you, unfortunately. And it also depends a little bit on the terms of what the business has as well.

Right.

I mean, if you're making a hundred thousand and you try and take a salary of 10,000, you know, they're gonna say good luck. You know, you're not gonna find anybody that wants to work full time managing this company for you for a salary of 10,000. Right. You know, for the year. But you know, like in your case with the Bellingham shop, you know, I know that's an escort. Do you even take a salary?

Yeah, small one. I think I take. I think I take $500. I think it's like $25,000 for the year. $500 a week. I think I do. I show up there once a week.

I mean, you're, you're spending an hour there, so it's easy to justify. You say no. You know, I have a general manager that does all the hiring, firing, you know, all the rest of it. Like I spend no time. You know, I spend. You hardly spend any time in that business. Right, yeah. So. So yeah, salary just has to be reasonable for the duties that you're performing in the business.

Cool. I'm glad we spent a lot of time on that one because that's probably the most important, honestly. But let's go ahead and go number two.

Sure. So yeah, number two is a kind of, not really necessarily a certain section of the IRS code, if you will. But it's just kind of recognizing that basically anything that is ordinary, necessary and reasonable in the business from an expense standpoint in the pursuit of income is deductible on your taxes. So and the IRS kind of leaves that open to, to a fair amount of subjectivity, if you will, in terms of what is ordinary, necessary and reasonable. So there's, there are some items that you.

Here's the, here's the question. Okay. I make videos.

Okay.

I need a haircut to look good on the videos. Is it necessary and ordinary for me to write off my expense of a haircut for the sake of making money on my videos?

Would you lose viewers if you were super shaky?

Absolutely. See hey, comment below. Would you dislike this video and lose and leave a subscription because shaggy hair? I think so, man. I think it was just bomb. Just bomb the whole channel.

I'm not sure it'd bomb, but I could see you losing a few listeners from that.

The lamp keeping community. Maybe the beard would actually help. So I'd have to explain that on the irs.

That's a good point.

But I try to use this a lot. That's my decision making framework too. It's like, look, is this going to impact the businesses in a positive or negative way, making this to purchase and because, like, I'm pretty involved with a lot of stuff. Like it's almost always that I'm doing something around the business and I can write it off. So, like, if I'm going to get food, like, it's probably going to be food that I'm using at training for the franchisees. And it's like the bars and stuff, like when I take them there and I'll use the leftovers, I'll use the leftovers. But it was for training for the franchisees. But yeah, I think it's just, you know, being where I always think of it. I always think about like this when I take a picture of my seat, I'm always thinking about if I was getting audited right now and I had to show this to someone, would I be able to, like, with a good conscience and with plenty of evidence, be able to say that this is A business expense. And so that's kind of the line I draw. I always just like, whenever I take my phone out and I'm taking the picture, I'm like, okay, is this a business expense? And I have Mr. IRS right here because I have been audited. So I. I know the fear of that. And I. The first one I did really bad. At the next one, it was not bad because I had things in order, had my books in order, had a good cpa, an accountant, and I just had more confidence. And even though there was some errors, it was like, they're justifiable errors that I was. They could tell I was trying to do what's right, and they give me a lot of slack for that. I didn't get penalties for it because they saw like, I was trying to do my best. And so I think that's the biggest thing, personally, when I've seen audit. That's what they're looking for is like, is this person trying to commit fraud or they just. They made a mistake accidentally.

Exactly. And isn't that funny kind of how.

How seemingly you've kind of when you get into that audit and you get into that standpoint, how understanding the IRS can be when you're just open and upfront honest with them.

Yeah.

As well. I mean, kind of similar to. I always equate it to, you know, people find out they're going to owe on taxes, and then they're just say, oh, well, I'm just not going to file. You know, it's like, okay, like, let. Let me know how that works out for you.

Yeah.

You know, like when the IRS has to kind of hunt you down and, you know, okay, we got your W2 here, but we don't have your tax return, and like, they have to put effort into finding you. You know, they're not going to take too kindly to that. Yeah, no, but you don't necessarily have to pay your taxes, you know, April 15, like, file your return. You can ask for to go on a payment plan with them. You know, they're, yes, you'll pay some, you know, interest and so forth like that as well. But on a whole, they're actually most of the time pretty willing to work with you. You just know, hey, file your return, do things right. You know, show them that you're trying.

Like my second audit as well, when they first contacted me, I literally, I kind of got that after the first one. I kind of got the gist. So they sent me an email like, hey, like they. And they send me a Letter and all this. And I was like, great. I literally sent them every single document I could possibly think of. I gave them access to my bank accounts. I just, like, opened everything up. And from that moment forward, I. All my interaction with them, they just trusted me on everything. Even on things where I'm like, I can prove that if you want me to do that. Oh, no, we trust you. Like, it's good, we're good to go and. Cause you're usually working directly with an auditor. It's not like you're just oblivion. They send this to the irs, they assign someone to you and like, you're working with this person one on one. I had calls with them, emails back and forth. It took six months. Like, it's. It's a big deal. But when you go into it knowing, okay, I do have my books in order, and that's why I switched CPAs, and that's why, like, I think it's so valuable, what we're doing with home service cpa, the confidence and just like, knowing you can go to sleep every night, know that the books are in order, and if you got audited tomorrow, you'd have a paper trail to prove and you wouldn't be caught with massive penalties and errors. And it's an enormous number of small businesses that go out of business because of tax issues. And I don't think people talk about it because they feel bad. It's something that's. They'll blame it on anything else but the fact that they didn't pay their taxes and now they owe hundreds of thousands in penalties and issues, and it's a big problem. And so if someone can just have the foresight to know that that's what an audit looks like and prepare for it and have a good accountant have their books in very, very important. So I always just, look, accounting is like, you go to have the cheapest. I know this kind of comes across promotional because now we're home service epa, like, it's a cost. But now how I look at is like, every dollar I spend on my tax strategy, my tax planning, I expect to get 10 to $20 back in savings. And. And more importantly, a hundred times in terms of just the quality of life, of, like, knowing it's taken care of, I can sleep well at night, and I know if I get audited tomorrow, we're good. And I switched my whole paradigm, like, three years into business after that first audit. Whereas, like, I'm okay with taking less money home, but being able to sleep better at night knowing that everything in the business is like, kosher legal, and I'd be okay with an audit tomorrow. It just totally changes your paradigm. Cause if you're always feeling like, okay, either you're not paying your sales tax, you're doing the Department of Revenue, you're trying to shaft them, or you're doing the IRS income tax thing. You're like, I'm not claiming I'm taking cash. There's always this cloud over your head, regardless of how successful you are. Is like, this could all be gone. Like that. There could be an issue. And I remember being that. That's why I know. Exactly. And I know there's people are like, oh, man, I know that too. And no one talks about it because you can kind of just play dance the game, but then you get caught, you can be really in trouble. And so I just encourage people, like, build the business away where you can sleep well at night. And if there's an audit tomorrow, you'd be fine.

Exactly.

It's so much worse than man. So. All right, number three. Sorry, we're going way too long on these. The media team told us not to go over 30 minutes, and we're only through two, and we're at the 20 minutes.

Oh, well, I want to save time for the last one as well. Okay. I guess we'll fly through three and four.

All right. That's a rock and roll.

So, yeah, number three is a bonus depreciation, and that is stemming back to the Jobs Cut act back in 2018. And a lot of people will say, well, what's the difference between the bonus depreciation and section179? And to be honest, for a lot of small businesses, there's not going to be a huge distinction there. The distinction is with bonus depreciation, you can actually show a loss as a result of the bonus depreciation, Whereas with Section179, you can only reduce your income down to zero. So we typically see the bonus depreciation end up making more of an impact on kind of the larger side of things, where it's okay, maybe you have your business and you also have real estate. Well, now you're allowed to take the bonus depreciation on the real estate and.

Offset the gains on the business.

Yeah. And if you. If you materially participate in the real estate side of things.

Got it. Okay. So this is fantastic. This makes more sense to me. Right. So I was talking to this accounting firm, and we were going over my cost segregation on my real estate, which allows you to do accelerated depreciation. On real estate. And my concern was this exact thing, they did not explain it as simply as that. So. Okay, great. See my mind, I was thinking section 179, which is I can eliminate gains, cannot take losses. Right. And so that's why, like I always tell most people, like buying equipment at the end of the year when you have no profit is stupid. Because section 179 doesn't go. It doesn't go negative. You get to zero, you aren't paying any taxes. But this makes more sense. Okay, so with my real estate, by taking the bonus depreciation, because I have material participation by having the Airbnbs, which now I'll switch back to long term rentals. But this year in 2022, I have material participate. I'm allowed to do this bonus depreciation. But now I'm gonna have this massive. It's several hundred thousand dollars in losses and I can offset the gains in the business.

That's awesome.

That makes so much more sense.

Exactly.

I did not explain it like that.

And that's where the, that's where the real estate game is just played on a different level from a tax standpoint. Right. You know, I mean, not that different from what you did. You know, you get an investment property, you put some rehab and remodeling cost into it. You can deduct all those rehab costs basically up front or on a shorter.

Time period if you're material participating or real estate professional.

Exactly. Right. So yeah, there's two big clarifications there.

And for the business owners, they're probably not going to get the real estate professional because like I have my license.

Correct.

Probably still not going to be able to based upon the 7, 8 parameters they have. But I'm able to do 100 hours material participate in Airbnbs and that's short term rentals. That's currently a loophole by the way. That's probably they'll close because it's not really fair. It's great. I'll take it while they have it.

There's a lot of people that have jumped through that. You're not the only one.

Yeah. So anyways, when it comes to bonus depreciation though, you were going more the business route, which is probably more applicable the most instead of the real estate. How can that be used outside of section 179, which typically equipment, assets, things like that. For bonus depreciation in a business. Is that useful?

It depends on the size of the business. And like I said, it's for the, for the average Small business owner. There's probably not going to be a big distinction there between the two just because usually for them, you know, the business is kind of the main thing. So there's not going to be tons of income that they have to worry about going to offset. And if there is, you know, if they're to that point, usually it's at that point, it's usually wise to consider still paying some income tax and filling up, you know, maybe the lower 10, 10 and 12% tax brackets, you know, on the, on the income tax scale. So strategy wise. So even though the option is there, oftentimes when you run the numbers on it, from a strategy standpoint, it may not make the most sense.

Yeah, this is crazy. This is why you need a good cpa because I got a strategy meeting and this is before Home Service CPA. I paid tens of thousands of dollars for my CPA firm. One call with them saved me $180,000 on taxes this year. Just that one part and that's the bonus depreciation part. Right. Here's one thing, correct me if I'm wrong. Cost segregations and accelerated depreciation can also does not need to be just on commercial property because I'm able to do this on my other property. I have an Airbnb on and it's a commercial. I don't commercial. It's a residential 30 year fixed loan. And I did not know that I can do it on that property as well because I have an Airbnb on it and as a short term rental, I material participated in it. I'm able to do the same thing on that house. Where this could potentially work for a business owner is if they in their house made a separate entrance, put a little room in there and did an Airbnb downstairs or the basement, or subdivided their house or did a tiny house like I did on that property. You get to take the cost segregation on the entire house. And what a cost segregation is, it's like, hey, the structure still has to depreciate it over the course of 27 years or whatever it is. It's commercial, it's 39 or whatever it is. But like the windows, the carpet, the fixtures, those can be depreciated way faster. And that's where you get this big loss up front. Where you can take 80% or 100% of whatever of those in the first year.

Is that something that a business owner could do potentially if they have a big tax liability in a year?

Yeah, that's certainly something that they could take A look at doing so. Although do keep in mind that the bonus depreciation now goes down to 80% or 2023. 2023. And it will keep on going down by 20%.

That's what I was actually referring to. I was messing that up. Yeah, exactly. They're phasing it out. So I took advantage of the last year. I was so happy.

Exactly. But yeah, that's how people play the real estate game, right?

Yeah.

You know, they do that with one property and then perhaps they look at doing this section 1231 exchange into a different kind of property.

1031.

1031. Sorry, what I say 1231.

1231. Yeah.

So many IR sections, but yeah, look at doing a 1031 exchange. Do a different property, do some more rehab there and kind of be able to have another loss.

We're 1031 into the headquarters, baby. Let's go.

That's right. I forgot about that.

Yeah, cool. All right, number four, here we go.

Gotcha. So in number four, just kind of paying attention to essentially. I know, I've heard it seems like the Inflation Reduction act is kind of the butt of a whole lot of jokes, but essentially what it is is essentially, it's a whole lot of green initiatives for essentially saving energy and going green in various aspects around your house. So if you have any home remodeling projects or construction projects that you are looking at doing, it's certainly worth paying attention and looking into some of those just. I mean, some of. Some of them are kind of. You've been able to get a solar credit, you know, 30% of the job if you put solar panels on your roof.

When's that end?

That's been there for a while and that will. It was slated and I believe this year, but then they extended it. Got it as part of that inflation reduction.

Tesla and phase.

Yeah, exactly. So there's. There's 30% of the solar. There's $7,500 on the electric cars. And even, you know, just replacing the front door, you know, becoming more energy efficient in your house, replacing windows in your house.

Wait, do you get credit on that?

Yep.

So what do they do? Like just prove that you change your door?

Exactly.

Is it a dollar amount or a percentage of the cost of the door?

It's a dollar amount.

How much?

You don't know, Dude, I could put a new door on every single door. If it's a negative number, like they're giving me 500, I get $100 door.

I would have said like 250.

Oh, that'd be a cheap door.

Right, Exactly. So, yeah, it's, it's not designed to cover the whole cost, but if you're.

Replacing your doors anyways. Something to think about.

Yeah. And, but yeah, and another item that's gone through my head before was a heat pumps as well. Yeah. You know, I mean, there's a, I believe like a $8,000 credit out there potentially on your heat for your friendly one. Yeah. If you install a heat pump, that's good as well. So.

Yeah, essentially, if you have construction.

That'D be a good business.

If you have construction going on. Yeah, there's a. Certainly some items that are worth looking.

Into there that would be a good business as well. A contractor that literally just knows all those little loopholes and you just pitch that to people like, hey, here's what the cost would typically be. I'm going to give you all these certain things. It's going to be like 30% less because all these tax credits. I love it.

There you go.

Okay, number five, this is the one supposedly just rolled out four weeks ago.

Exactly.

Okay. All right. I guarantee, I don't know what this is. I have not watched videos and podcasts for at least a month, so.

Gotcha. All right, well, this is, this is the answer to, you know, there's, there's a tick tock video in the augustination group a while ago.

Oh, Augusta rule.

No, about. It's basically saying, hey, you know, you can hire your kids, pay your kid $12,000.

It's below the standard deduction.

So pay your kids $12,000 a year. Then, you know, you can start a Roth IRA for them.

Right.

You know, they're going to be millionaires when they retire. You know, kind of totally negates the fact that, you know, you're trying to pay your 4 year old $12,000 for maybe an hour worth of work. Right.

Hey, make a tick tock of the kid.

So like. So yeah, you do have to pay them a reasonable wage. Right, right. But now, as of four weeks ago, what got expanded was the use of the 529 plans. Mike.

Oh, isn't that college education?

Exactly.

And for a long time, savings plan for state college.

Exactly.

But they're going to pay for our college debt anyway, so why do we need to concern ourselves with this? Sorry. Go ahead.

Fair enough.

529S your savings plan for college for your kids.

Exactly.

Okay, so what's still.

And so for looking at the history of it, essentially, people have kind of knocked on 529 plans and be like, well, you know what? You know, my kid, you know, my kid's gonna be just, you know, so smart, you know, they're definitely getting scholarships, you know, to college. Like, so we're not going to need to pay for college, you know, definitely getting scholarships. That or number two, just, you know, they'll come up with something. Oh, you know, Uncle Jimmy went to college and he just got a girl pregnant. And, you know, I don't know about the whole college thing anyway. All the rest of it, I don't even know if my kid's gonna go to college. Like, why am I, you know, and if I save for it and then they don't need it, then there's a 10% penalty on the earnings and just gets a little bit.

So no one was using it.

Yeah, yeah. So. So people had some legitimate concerns about being able to use it, if you will. A couple years ago, they started expanding. What it could be used for a little bit. So you could now use it for, like, K through 12.

Oh, I did not hear that.

So you could use it for, like, K through 12, private education, if that's where your kids are. Or you can use it for trade schools.

Could you just put it in the account and then pop it out?

Basically. Whoa. Yeah.

So private schools. Trade schools also.

Yeah. So that. That was as of a couple years ago.

Oh, wow.

And now, as of four weeks ago.

If the money in a 529 plan goes unused, you can roll it over to a Roth IRA for the beneficiary. For the beneficiaries of the.

So the kid.

Exactly. For the kid. You can't do it back to the parents Roth IRA, but you can for the kid.

So no 10% fee if you. If you don't use the money and then you pull it out.

Correct. So if you. There's no. There's no 10% penalty on the earnings if you're rolling it over to a Roth ira.

Right.

So essentially, what you can do, you can roll over up to $35,000 lifetime value from a 529 plan into a Roth IRA.

Interesting. So technically, if someone's like, just having a kid now.

Two big caveats.

Okay.

All right. One, the 529 plan has to be active for 15 years.

Oh, wow. So you guys.

I'm young. Exactly.

For this, for the rollover to happen. Because you can use the money right away.

Yeah, you can use the money right away if you're going to roll it over to a Roth ira.

Interesting.

It has to be there for. The account has to be open for 15 years and the money has to have been in the account for five years. So.

So they don't want people rolling it in and out and then. Gotcha. All right, Gotcha.

Exactly. So conceptually, what does that look like? If, say that you have a newborn today.

You put $100 a month into a 529 plan form for the next 15 years. So in total, it's $1,200 a year. You're putting $18,000 into this account over the course of a five year period.

And that money goes in tax free?

Well, yeah, you don't get a tax deduction for it. It goes in after tax.

Gotcha.

Okay. For the 529 on the federal level, there are some states out there that will also give you a credit on your state tax.

Okay, so you're still paying tax on this money, but it's going into a savings account. Okay.

Yep.

And so why would you want to do that?

So, so you do that to save for college. Right. But say that, you know, there's, there's no intention to college there. I'm just trying to set them up, you know, with a, with a, a Roth IRA, essentially. So years, they're 1 through 15, you're putting in 100amonth, year 16 through 21. Because you can only convert over $6,500 per year. Per year, up to the 35,000 lifetime. So it will take about six years to convert everything over.

Yeah.

At that point, then you'll have roughly $40,000 in a Roth IRA if you're a kid, when they're 21 years old. Yeah. And if you, if you leave that untouched, just sitting in the Roth IRA account until I hit full retirement age at 67, that's over a million dollars in the account. If you were assuming a 7%, 7% return on the investments.

Pretty cool.

Okay, so that's turning $18,000 into over a million, tax free for your kids at retirement.

With inflation, you might be able to get a Happy Meal when you retire. But, but here's the thing. Why, in general, why is that plan even exist? Because if the money is being taxed before it goes into the savings plan, what's the difference between that savings plan for college and just a regular savings account at the bank? Like, what's the difference? Because you're getting taxed on both of it.

Well, if it's used for education, the earnings, the earnings from that aren't taxed.

Oh, so the, the, the growth of that account. Yep, got it. Because that money can be invested. Is that correct?

Correct.

Yep, got it. So it's kind of like you could put this money in, then you invest into s and P500 or other stocks or whatever, the growth, the increase of that. Got it. And so what you're saying is when they do the ira, all that is now grown without any tax implications.

Exactly.

Lousers trousers. That's pretty cool, dude. I would have kids just over that. I have a few children.

I found the ticket for my.

To have kids and then just make sure somehow they just get booted somewhere before their retirement and I get all the money and I'm shook.

There you go.

Oh, man. Cool. That's. I didn't know. That's okay. So number five.

So, yeah, certainly if you have young kids.

Yeah.

Start a 529 plan. Even if you can't fully fund it for a while going forward, just, just start it.

So that.

Put it. Put a hundred dollars in and start that 15 year clock.

Got it.

And then hopefully, you know, five, 10 years from now you can. You're at a point where you contribute more to it.

And at the very worst, at the very worst, if you use it for like private school, trade school, things like that, any growth over the next, say like five or six years is not going to be taxed when they pull that money out.

Correct.

Love it.

Well, even, even using the numbers that we had. So you're putting in $18,000.

Right.

Over the course of the next 15 years. But then that will be roughly, you know, probably 40. Close to $40,000 by the time that there are 20. Right?

Yeah. These 25 of that, let's say.

So there's $22,000 of gains there.

Yeah.

That's all tax free.

So. So you probably saved yourself six or seven thousand dollars in taxes just by doing that.

Exactly.

Let's go. I love it.

So. And there's technically no amount. There's technically no limit to the amount that you can contribute to a 529 plan. It's just what is limited is the amount that you convert over to a Roth ira.

Oh, I did not know that. Wait, I thought it was 6,500 a year. Or is that just how much you can convert into the ira?

That's just how much you can convert into the Roth ira. What?

There's no limit on the five on that plan in order, like how much you can put into it?

Correct.

What?

But then it has to be used for education expenses.

Oh.

Right, right, right. Okay. Got you got you. So that makes sense. If you take the money out, you got it. Okay, that makes sense. If you don't use it for education, tax, educational purpose, and you pull the money out, you're getting taxed and you're having a penalty, right?

Oh, yeah. When you pull the money out, then, then those gains become taxable and then you're also paying a 10% penalty on those gains.

But your kids didn't have to go to college, which is a positive.

I went to college, so I'm not going to say that.

But mbafrontrepreneurs.com you can't say that to a CPA. Awesome. Well, thank you. That was fantastic. I did not know that last one. Good job. You nailed it. And so homeservercpa.com actually, as of this going up, there's a new page on there. We can actually book a call with Brad and see if you have any questions specifically about the service, anything about what we do, what we do not do. But what's cool, I think is the, not just the tax prep, but the strategy side of things. And for most business owners that are doing under say 3,4 million, they need one or two calls per year with an account just to go over where we at. If there's a big acquisition, they can email us. You actually have a portal where they can message you back and forth. They put all their files into a place, but if they have question about an acquisition or they're buying land, they can just pop a question is worth so much. And so I'm really happy that we were able to do this for small business owners. I do it at a level that is very, very, very expensive. And I have lots of attorneys and then also accountants, both for franchise law, franchise accounting, etc. And then multiple, like a whole firm cost way too much. However, it took me years to find just a CPA that would, would not just run my tax return, but would rather sit down with me and answer my questions, explain some of this garbage that we talked about, numbers and these forms and all this stuff. Because like, I want to know and I don't want to just go on YouTube because who knows what's on there, right? And there's a lot of wrong information now, especially about things like the Augusta rule, paying your kids a gazillion dollars at the end of the year and all this stuff. And so I want my CPA to be the one that tells me what's going on. And it took me a long. I went through four CPAs before I found What I'm currently I have and it's. It's way too expensive for 99% of entrepreneurs. So I think home services CPA is great.

I heard that story quite often at Summit as well. And that basically the tax returns kind of just becomes more of a transactional encounter, you know, with their preparers and CPAs and all that, where it's just, hey, I dumped off the book to them in January and April. They let me know they were filing an extension. And then June, my tax return popped out. And you know, there wasn't really much dialogue. It just.

And you didn't know it was going to be. There was no planning for it.

I just assumed that I was taking the section 179 that you wanted to pay the. You. I assume you wanted to pay the least you could this year. Yeah, but there is no strategy standpoint from kind of what's going on outside of the business. What are your plans for the future years and all that.

Yeah.

And even when you're looking at there's no tax strategy side of it, even.

When you work out in the field. I remember like In, I think 17, 20, 18, you were like, hey, you should pay more taxes this year because very likely that, you know, with the way the, the government's going, that we're going to be paying more taxes in 20, 19, 20, 20. And sure enough, you're right. And so that year I didn't take the section 179.

Well, that. But I also foresaw your income going up quite a bit as well. So it's like, hey, regardless of what they do, you're going to be in a higher tax bracket.

And a section 179 when you're a higher tax bracket is going to save you more money than taking it this year, potentially.

Exactly.

Yeah. These are the things you got to know when it comes to CPA stuff like you shouldn't take section 179 if you made $30,000 in profit this year and you expect next year to read to $200,000 in profit. Like take the section 179 when your tax bracket is not 15, it's at 35. It's a good idea, but you got to talk to an accountant. So in that case, you're going to talk to Brad, go to homeservicecpa.com and we made this new page. That's what I was coming to. You can actually book a Zoom call for 15, 20, 30 minutes, get some. Any questions answered and then I just highly recommend the service. It's a thousand dollars to get set up, and that will get you in forever. You can use a bookkeeping, payroll and taxes with that, we want people that are going to be dedicated to actually submitting documents and being invested in the strategy of what we're doing. So that's why we have the enrollment fee. And then after that, it's nothing but clear sailing and solid books in line, whether it be using them. You can have to do all of them. You just do one. You just do taxes and hit up Brad. Lisa's on the bookkeeping and the payroll side of things, and we work together in the same office all the time.

So.

Yeah, I appreciate you coming on, sharing these five things, saving us all billions of dollars.

There you go.

Let's go robbing's Uncle Sam. $1 a time. Thanks, guys.