Helping Investors and Business Owners Build a Tax Strategy to Save Taxes

Hey, it's Mark Panolski, the land geek for the great niche real estate website thelangic.com and on this week's Art of Passive Income podcast, I am pleased to help you save tons and tons of money on taxes safely, legally. My guest today is Mark Pearlberg. He's the founder of Mark Pearlberg cpa, pllc, specializing in advanced tax reduction strategies and services for high income earning real estate investors and entrepreneurs across the U.S. he and his team pioneered the most advanced strategies to advise hundreds of real estate investors and business owners in creating millions in tax savings and determining the most advantageous business and financial decisions. Mark is a CPA certified Tax coach, certified tax planner and has a master's in accounting from North Carolina State University. All right, who does like North Carolina State? The Cardiac Kids. Mark also invests in real estate and produces a weekly live podcast on tax, business strategy and real estate. Mark Pearlberg, welcome.

Thank you, thank you, thank you. Thanks for having me, Mark.

So, you know, we all know that most of us in real estate and own businesses know that our biggest expense in life is taxes. And so but oftentimes we, we look at other things to save money on and you know, we'll scrimp, we'll scrape, scrape, we'll defer, right, we'll defer gratification, we'll delay gratification, we won't go on that vacation when in reality, if we just spent a little time and energy and money getting the right tax plan, we could live an incredible life and, and not give so much away to Uncle Sam. So with that being said, Mark, can we just rewind the tape and kind of talk about your, your journey and why you became a CPA and what you love about helping businesses and real estate investors save on taxes?

So I, you know, I used to be a teacher. I was a teacher teaching social studies in New York City in my past life. And my original game plan was to be a teacher during the year and a real estate agent during the summers. But I was doing in New York City during the Great Recession and realized, you know, I've always really actually been very good at math and wanted to do something that would be appreciated. And so when I realized I didn't want to work for the government and, and I didn't want to live in New York City and I didn't want to just be a now I felt at the time like a glorified landlord. Just being a rental agent in New York City, I realized it's time to capitalize on my greatest strengths. I've always been a numbers geek. I love looking at numbers. You know how people say, oh, punching that sounds terrible. I love number crunching and I wanted to help people out with my, with what I'm naturally gifted at. And I've always been a real estate guy, so for the longest time. So why not help be around other real estate folks and entrepreneurs who I admire and help them out with my greatest gifts and gift sounds a little bit arrogant, but my greatest strengths here. Right. And in addition to that, you know, I still love to educate and lead and inspire people. And we can do a lot of that with, with tax. Because as you can, as we all know, our education system does not teach you anything at all or very much at all about how to take care of your own taxes and plan for this. So you need people like us to jump in and help people out.

Yeah, I absolutely love it. And what, I mean, you know, I've talked to a lot of different tax people on this podcast and everyone sort of has a different philosophy. They might have a strategy, they might have a, a, you know, you do this, you're going to save money, you know, put money into your SEP or, you know, do a conservation easement, you know, something like that. What, what's your philosophy when it comes to tax strategy?

Yeah, so I, you know, I think that tax strategy is not the first thing you think about. Obviously, first you think about having profit. Yeah. But now let's, let's go into. So we pretty much have an order of operations and we start off assuming you don't know the first thing about what taxes are, regardless of your background. We even have tax CPAs as clients and we assume they know nothing. And the first and most powerful and also, also the least, the risky thing you can do to reduce your taxes is just know what you can deduct, maximize your deductions, have good records. So we start off with those foundations of understanding what your deductions are. Do you know how to write off your mileage and deduct it? Home, office, travel, all these essentials. Do you have a system where all of your deductions are going out of the same card so we can track these things? So the foundations have to be there first before we go into all the more advanced and sophisticated stuff here. Because we may find, if we, when we understand these things and take advantage of the tax incentives to have deductions, we may find not a whole lot of tax liabilities remaining after we've implemented the essential items here. So that's the first Step build a foundation. Then we move to more advanced strategies. How do we take ordinary events and activities, find business purposes for them, make them tax deductible, whether get a business meetings with your family and friends, legitimate business meetings and just understanding that you're, you're getting all the deductions you deserve. Next step is the planning. Right? So the planning. I think the biggest thing here, when we're still talking about foundational things that any decent planner will do, is evaluating the timing of expenses and revenue. Now a big thing we talk about is cost segregation studies for real estate investors. Bonus depreciation. Can you write off your car? Can you shift expenses up to reduce your taxable income? To free yourself some capital in the form of tax savings to reinvest into your business or other financial instruments to build your wealth. So you want to shift your expenses to offset your profits. So, so you have as much capital to reinvest and build your wealth over time and move your income recognition into a later date, whether it's through retirement accounts or through other type of strategies, installment sales, etcetera, etcetera. So you're going to be paying taxes and recognizing that income at a later date when you've acquired the wealth through your tax savings. So shifting, shifting them, timing of expense and revenue and then shifting obviously we know some of the ways we can shift expenses and into, I mean shift income into other more taxable favorable manners. For instance, hiring your children, having them pay taxes at a lower rate. There are some more complex entity structures where we can shift. So there's a lot of things like that that we can consider. I mean there's, there's hundreds of variables really looking at the whole portfolio of stock portfolio income. We want to evaluate your interest income, your real estate income, W2 income, business income. Really looking, taking a holistic look at this whole picture and what we can do now and then if we can drive your taxes low enough and sometimes we can bring clients to a $0 tax bracket even if they're profitable. And that's our job, doesn't stop there. So once we've maximize our tax savings, then we think about what can we do now to prevent future taxes through other financial vehicles. So that's kind of our process at a high level. But really what we want to do is first we maximize our tax deductions. We try to drive down our adjusted gross income through all the strategies we know with the timing and the shifting and some other opportunities there as well. And then the final step is we look at available tax credit Opportunities where instead of paying the irs, you're going to get tax credits for investment vehicles that will generate cash flow in the future.

Can you give me an example of one of those investment vehicles that we can will generate cash flow but will also get us a nice tax deduction?

Yeah, absolutely. So we talk, you know, I've spent lots and lots of time talking about how real estate investing can be cash flow positive but the depreciation will offset your cash flow and create tax losses. And, and you can accelerate the depreciation with a cost segregation study. And if the right circumstances align, you can use those losses to offset your ordinary income if you have rep status or your wife has rep status. And by that I mean real estate professional tax status such as yourself and other people flipping land or if you're an agent or you're a real estate investor, wholesaler, wholesaler, et cetera, et cetera. So that's a wonderful way you take your profits, put it them into real estate, run the cost eggs. Another one I really like for people who have less flexibility is if you invest into oil and gas, roughly 80 to 90 cents of every dollar is going to be tax deductible of, of intangible drilling costs and can offset your W2 income up. And that's going to be up to about I think around $540,000 in 2023. Around that amount between 5 and 600,000 if you're married, filing joint half of that if you're single. And then also there are ways that you can invest into other businesses that give you leverage and give you lots of tax deductions immediately and create future tax, future cash flow. We're exploring the possibility for some of our higher income earners of investing into solar power rentals where they are going to materially participate. And because that's not real estate rentals is not passive. We can use the losses to offset the income and also create tax credits that can even be used to carry carried backwards against prior year liabilities. So there's a lot of cool stuff there via the opportunity to build a business that creates tax deductions on the side. So that was a lot. Also short term rentals, you don't need rep status. Really hot topic for people looking to get started in real estate. Can't quit their jobs and want to create tax savings.

Yeah, that there's a lot to unpack there. I think what's, what's interesting is I'm looking at your bio. You're dedicated foodie, cook and world traveler. And I'm thinking to myself and you and I. I'm also foodie. I can't cook, but I love to travel the world. Like wouldn't it be great to buy a travel and food blog?

Yes.

And then, and, and then write off the expenses of our. What we love to do.

That's what I'm planning to do actually. You pretty much, that's pretty much my game plan. You know, once I've hired enough people and can take myself further out of the business, I'm going to have ordinary necessary businesses that necessary expenses to travel to Jamaica to explore the history of Caribbean cuisine and then to travel to Rome and make videos and talk about how the history and and trade all is inspired the the food in Rome. And while I'm enjoying some delicious pasta.

Yeah, absolutely. So a lot of us just think like our everyday lives. We, we can't find deductions, but there are deductions there. But let's talk about the documentation. And documentation is the funny joke. And this is in software development as well and also in businesses. Documentation is like sex, even bad documentation is better than no documentation. And so when, when you're looking at a client and how they're documenting their activities so that they can get a legal deduction and they're going to be able to be defended in tax court if they're audited, what are some of the systems and processes that you like to see your clients using to make their lives easier and, and document?

Yeah. Oh, and you know, just to backtrack and I guess I really do love the idea of everybody could should at least one time in their life have the experience of starting some sort of side hustle where I love the idea of you're doing something you love like a food blog or some. You're trying to monetize some sort of passion of yours which is getting give you deductions and doing things that you already enjoy doing. Now what I would say here for substantiating your tax deduction generally, you want to have three things in place. So you want to have the information right. You want to have the who, what, where and why. You want to have who you bought it from, the vendor. You want to have the price, the date, all that information. You want to be able to have some sort of record of that. You want to be able to have the receipts if it's over $70, they say. And you also want to be able to trace where the money came from because for all they know you just pulled out. You know, you could dive into the dumpster of Home Depot and pull out a bunch of receipts and say that they came out of your bank account. So you want to be able to trace these transactions to the bank account that they came from. Now Obviously QBO is QuickBooks Online is a great resource for that. But if you're just getting started, you can take pictures with your phone, you can do an export from your bank, your business bank account into Excel to populate the data. So there are, there are simpler ways. And then obviously bookkeeping is, is the gold standard for more, more legitimate businesses.

I love it. Who is your ideal client?

My ideal client is someone who overpays in taxes so we can change their life and reduce their taxes.

Okay, that, that, that's easy. And what makes a good client? I know for me, because I have so many businesses, I'm like my bookkeeper's biggest headache and there's so much going on and I'm always worried like, are they going to fire me one day? Like, am I just too difficult? But they haven't yet. What, what, what makes a good client? What, what makes a client like, okay, you're, you're making your lives way harder than it should be. And, and you're actually exposing yourself to audit risk if you keep behaving this way. What are some of the. No nos.

Yeah. So this is, you know, I think this is important for the audience because especially if you're an entrepreneur, your relationship with your accountant is so important and you're going to get more out of your accountant and you're going to get a better return on investment if you treat your accountant right. Right. So, you know, getting your diet. So what we like in clients is people who are organized, who give us clear answers, who get us their documents on time, who can give us projections and understand their profitability, who have clean records so we can plan and be proactive and clients who respond timely to us and, and also just have good. Who does. Who know how to work with professionals and can treat them, who understand that this is an investment. You know, if we work together, we can really do amazing things with our clients as opposed to clients who see us as an admin cost and are trying to, to cut away at, at the time and investment into our services.

Yeah, I think that's, that's such a good way of looking at it. Where, when, when people whether it's, you know, your, your tax professional, your, your lawyer, any type of professional, it is this partnership and the more you invest in that relationship compounds just like any relationship. Yeah, it does. It does Pay huge dividends. It's, it's interesting. Even with virtual assistants in Jamaica or the Philippines, I like to think of them, they're, they're team members or partners. It's not just a, you know what, you know, a cog in the wheel, if you will. And because of that philosophy, you get a. Players, you get people who put emotional labor into the work. They, they go a little bit further. So I think that was a really good answer. Go ahead, Mark.

No, no, I absolutely agree. And just something I would say is that we tell people, we, we can't always waive our magic CPA wand and make the taxes disappear. And we, and we educate our clients on how to be proactive. Like tell us about when you're having a kid. You know, we might be able to strategize life events. Are you leaving your job or is there going to be a spike in income? Is there going to be a capital gains of your stock or sell property? The sooner you tell us these things, the more we can be proactive and create the best scenarios for, for you as opposed to being reactive and we find out all these surprises on your return. There's, there's less that we can do to help you out.

Yeah, no, absolutely. What's some of the worst advice you see or hear given in your area of expertise of being a cpa?

Yeah, so here's one thing, and I see this from a lot of people on social media just trying to talk tax and they're not really advisors. There is a myth out there that you need an LLC to have a tax write off and it's absolutely not true. If you are a real estate agent and you don't have an llc, you get your tax deduction. So if you have an ordinary and necessary business expense, you, it does not have to come out of your LLC when you're getting started to have a tax deduction because you're a sole proprietor. So if you have business expenses, even if you don't have the entity structure in place just yet, you're just getting started, you still get those tax deductions. So that's a major misconception.

And then I did not know that. That's a great one.

Yeah. So you default to a sole proprietor, you're entitled to your, your tax deductions. So I would say that and I would say some general concepts I see being misapplied are building businesses just for the tax deductions. And like just so you can hire your kids and do all these things. It's like why don't you go out there and make some money? Like you put all this time into this. Yes. Use the, all these tax deductions, but you know, purpose of your businesses is to make you money. Then we'll worry about the taxes.

Yeah, I see that. I've made that mistake myself years ago where I would let the tax tail wag the dog and I would make investments or I would do things basically just to save taxes when they weren't going to bring me any additional income and they weren't going to create any additional value. Yeah.

You know, this guy called me once and he was like, you know, I'm thinking about starting a landscaping business to reduce my taxes. I'm gonna buy this big truck and I'm gonna write it off. I'm like, this is dumb. Like you don't even need this truck. You're gonna buy like a seventy thousand dollar truck. You know what you do? You, why don't you save them the hassle of dealing with the truck, pay me $70,000 and write that off on your taxes. How about that?

Yeah. Yeah, there you go. There you go. Well, Mark, what did I, is there anything I should have asked you? I didn't ask you before we get to the tip of the week.

I, I don't know. That's a good question. But I would, I, I, I don't know. I don't know what you should ask me.

That's a thorough interview then, brother.

That's good.

Yeah, we've covered up well. Your mentorship has been, has been phenomenal, this podcast. But now we're at that point where I want to ask you for your tip of the week. A website, a resource, a book, something else actionable where the art of passive income listeners can go improve their businesses, improve their lives. What have you got?

Okay, so I am building an online community. I'm using the Kajabi platform to do it. It is going live next week and if you want to get that information, it's going to be free until the end of the year. I'm going to be doing weekly Q&As and meetups and even after the end of the year, we're going to do maybe a monthly Q and A for free. If you ever want to talk to me and just gain a little bit more, build a little more relationship, I'm going to go live. It's going to be free. We have tons of free resources. You're going to hear me riff on tax strategies and answer lots of questions and have lots of fun. So find me on Instagram, Mark Pearlberg, CPA Tax and we can, you can get in the community and ask me any questions you want. So that's a good resource. And then as far as a tip I would give is I would say look at your tax advisors as an investment into your future.

I love it. I love it. Well, my tip of the week again is just going to be check out Mark at Instagram. Get involved in that community. Mark Pearlberg, CPA Tax we'll have a link to it and yeah, Mark, are we good?

Yeah. And you can also find me anywhere else. I'm pretty active on LinkedIn, Facebook, I don't do Twitter very much but you can find search me on Facebook and we post all the time and try to add value, value and we try to do daily videos and on all our sites. So you know, you can find me on Tick Tock and hopefully we can add some value and give you guys some cool ideas.

I love it. I love it. I want to thank the listeners, remind you the only way I'm going to get Mark Pearlberg to come back and give us more tax wisdom is if you do three little favors. Follow rate Review the podcast, send us a screenshot of that review to support@land geek.com and send you for free a signed copy of Dirt Rich. Also, today's podcast is sponsored by Flight School. Learn how the next 16 weeks can transform your life. Go up that mountain of land, investing safely, quickly with our team. 16 weeks and I know you're thinking, what about the investment? It ain't going to cost you nothing. Guaranteed you're going to make it back 180 days or less or we're going to refund you. Learn more. Go to landgeek.com forward slash training the land geek.com forward slash training Mark Pearlberg, thanks again. Let freedom ring. Thanks everybody. Thanks for listening to the Art of Passive Income podcast. Are you ready to learn how you can start building a passive income? Come without renters, rehabs, renovations or rodents. Schedule a free consultation at thelandgeek. Com training. Let freedom ring.