Year End Planning could be what saves your business.

Hey everyone, today, um, I wanted to keep talking about year-end planning. I, uh, and before I get into that, I've been noticing something interesting about mentors in the fitness space, um, and I— one of them is currently talking how they've retired, and I've really enjoyed his message because I think there's some truth to it where He's suggesting that one doesn't grow wealth specifically from what they choose to do with the revenue business in general. Certainly some people will grow a business that is able to sell for a lot of money. Um, I don't think that's necessarily going to be the case with most fitness, uh, like especially micro gyms with the way they're currently set up. That's not to say that— I know that there's some fitness companies who've gotten some funding, and as part of that funding, I think there are ideas to develop some technology. I hope that as you're hearing examples from people when they talk about gyms and then the technology tied to it, that you realize if they're able to sell for multiples because of the technology portion, not because of what their gym is doing. I wish some those people would be a little bit more open about some of those things. It's actually frustrating because I think it's deceptive and not healthy to not share the full truth. But anyways, with that being said, I think the way we can utilize the profits from our business success and what we do with that is a huge contributing factor to our ability to create a retirement so that We, we can work as long as we want to work, as opposed to being forced to work until, you know, we're super tired or we die. Um, so with that in mind, I was thinking about one of the big plays that I think, from an opportunity standpoint for gym owners, is to eventually own the location that their gym is at instead of leasing it to somebody else. Have that rent payment go towards paying down the mortgage on the building you own. Because by doing that, you are able to leverage the revenue from your gym and you're also able to grow an asset that not only are you increasing your equity every time you make a payment, in most cases, commercial real estate and real estate in general, tends to go up in most cases. Obviously there's been some weird, um, situations in our country, in the US, but in general I think that's a safe statement. So with that in mind, I wanted to share an example of a client we had who had multiple locations, and for years this client wasn't— their accountant, their CPA wasn't doing any sort of year-end planning with them. It was your typical, here, here are your numbers, plug and chug. They put it into a software, they deliver the product. There's no questions, there's no dialogue, there's no expertise in what the owner was doing. But what they had done with their multiple locations is they had— they owned the real estate where their business was located. Well, there's an interesting thing about tax rules When it comes to the difference between the way the IRS looks at rental income and the way it looks at, say, gym income, the revenue from gym memberships. Rental income is considered passive, and because it's passive, they have this fun rule in it that says you can't take a passive loss unless there's passive income to offset it. So if you own your commercial space, A couple automatic expenses that you're getting as a tax deduction every year is the property tax, the interest expense, and the depreciation of the building itself. Those are all automatic. They're going to happen just from the normal course of you owning the commercial space. But without the proper structure, all you have are those 3 expenses. But you don't necessarily give yourself enough income to cover those losses, like especially from when you think about the depreciation. That's what we call a non-cash tax deduction because you borrowed the money. And now every single year that you have this property, you get a percentage of the purchase price as a tax deduction, even though in future years, you're not actually paying that money out per se. Obviously you're making payments and you pay down principal. But the point being is if I'm just transferring money to cover my mortgage payment, which maybe includes my tax, I have my tax escrowed into my mortgage payment, I'm probably not having enough income to bring the net income of my real estate property to zero. And that's what happened with these guys year after year. It was like 6 years in a row that they had a real estate loss on their business, and their accountant never pointed out to them that, one, they weren't getting any tax benefit from it in the year that loss happened, and two, never did he suggest what I'm going to suggest from you, which is the consequence of sitting down with a an accountant to do some year-end planning. So what happened? They lucked out in this case because real estate losses will carry forward, meaning if I couldn't take advantage of it 6 years ago, this year, if I haven't offset it yet, I could still technically take advantage of it. But without any sort of year-end planning, they were going to continue to accrue this loss on their real estate that they got no tax benefit out of, which is silly. They're leaving money on the table. So with some proper tax planning, once we were able to look at the past and see what had been done and look at their situation and how they're structured, we were able to show them, look, let's increase the rental income over to your commercial real estate entity. which lowers your taxable income and allows you to take advantage of the loss. And so for them, the year-end planning alone saves them $4,000 to $5,000 a year in tax savings just because we are now making sure that there's enough passive income to offset the passive loss. This is just one simple example of how year-end planning can be very beneficial. It, it's worth your time to sit down with your accountant and figure out, because that's again one example. The tax code is 76,000 pages long. Not a great read, not very invigorating. The storyline is choppy. But for weirdos like me and our firm, we understand the rules that small business owners need to play by. So you want to find an accountant who understands that, who can look at your situation and give some suggestions on things that you can do now before December 31st happens, um, so that you can take advantage of all the situations that are going on right now. And I think it's even more critical while it— while the current administration in the White House is making it difficult for accountants to tax plan, um, there still are some things that we know, uh, regardless of whether they're going to make changes or not make changes on the things that they're proposing. So like, we're in that stuff. So you want to, you want to find an accountant who's kind of aware of all the things going on so that you're taking advantage of the situations and don't get stuck in a situation where maybe next year, uh, based on some changes that are being proposed, you should have done something about it this year before the year ended. So I hope that helps. Again, all of this increases your cash flow, right? By reducing the amount of cash that goes out to the IRS for taxes, you now have that money that you can control and choose to do things with. And that is what— why profit is so powerful. So remember, profit is a choice. Have the courage and wisdom to choose it.