Creating Your Individual Year End Tax Strategy

Welcome to Real Money Talks, real strategies from the moneymakers and the world changers that you can use to make millions, keep those millions, multiply your wealth, and build your team. Here's your host, author of five New York Times bestsellers, money expert on Dr. Phil, CNN, CNBC, The Street TV, Fox News, and The View, Laurel Langemeyer. Hi, this is Laurel, welcome back to Laurel's Real Money Talks, the podcast where we talk about getting rich, how to make money, how to keep it, how to invest it, how to use an integrated wealth team, and the strategies that most people do not know. So for the most part, I keep these podcasts evergreen, but we are recording at the year end and I always talk about the big five. You've got to get incorporated if you're serious about getting rich. Companies make money, individuals get taxed. You've got to get your qualified plans, you've got to review your trust, your insurance, your wealth, and a whole other list of things. But we are on a, what would we call it, Scott? On a rampage, intense, so all of you say you want to get rich and then you don't do anything that looks like it. So today I have Scott Arden with me, he's from Controllers Limited. Great company, great team, smart guy, does all my work in corporate compliance. And we're going to talk about this entity, no matter where you are in the world, specifically we're going to talk to the Americans or those of you that want to have companies in America and why it's so critical to have it in the tax year that you want to save. So Scott, welcome to Laurel's Real Money Talks. Thanks for having me. So first of all, like how did you get here? Your background isn't like you went to school and got, you know, became a corporate specialist, right? This happens out on the street with smart entrepreneurs. So how did you get here from that place? Well, how did I get here from that place? Well, I really, you know, I started my first company when I was 19 while I was actually going through college and that's kind of where I really dug in to find out more about what I could deduct, how I could protect everything that I've built up to that point and then moving forward, you know, how to protect that as well as the wealth accumulated, if you will. So 22 years ago, started out in this industry, like I said, just truly trying to understand what I could or could not do. So I dove into the tax code, which is not what you would call the most fun reading, but it was fun to me because it was obviously knowledge. And in addition to that, knowing what I could do moving forward. So anyway, yeah, you know, controllers kind of came about, like I said, I was with one of the largest asset protection firms for about 20 years. My business partner, Mike, was in the financial industry for about 20 years. And one of the biggest disconnects was, you know, nobody, the tax side was not talking to the legal side. And so what we wanted to do was really bridge that gap and bring everything together so that there wasn't a delay. You know, we're talking about year-end tax strategies. And so if you've got professionals that don't talk to each other on a consistent basis, trying to implement those tax strategies at the end of the year is, I guess you'd call it kind of fruitless. Well, and so a lot of people hear that, you know, the entity. So I'll have you describe the typical ones that are used in the United States, but it's not just about the tax savings, which right now, those of you listening, you know, the United States, through, you know, corporate deductions, you can deduct up to, I think it's 81,000 pages of tax code. I mean, the code is enormous. 2018 had a lot of advanced changes. The rich are going to continue to get richer. The poor are going to get poorer. So it's not just about taxes. So start with the benefits of just being incorporated from a protection standpoint, a liability perspective, all the standpoints, and then let's describe them. Right. OK, so, yeah, definitely. You know, when going into business, business is high risk. It's all it always is. You're going to run into things like contract disputes, potential audits, having to go through arbitration, mediation, things of that nature. And so really the premise of corporations or LLCs, which a lot of people think, you know, LLC is the best thing since sliced bread. But due to some of the tax law changes may not be the best entity for that individual at that point in time. Now, asset protection is really the biggest thing. A corporation is an artificial person created by law that has the ability to do anything you want it to do. But things can speak for itself. So what this corporation or LLC is put in place for is to separate out personal assets from business assets. The last thing you want, you be out there in the field, you're moving along, making money, and then all of a sudden there's a liability issue that arises. Well, the problem with that is if we're not incorporated or having an LLC, the personal assets are on the line. So, you know, we can talk about accumulation of wealth and making money and things of that nature. But if we're not talking about protecting it, that's a huge factor. Right. So there are different, you know, the different types of entity structures, like I said, LLC, which is kind of a hybrid between a corporation and a partnership. It has the ability to take on the method of taxation of a corporation, but offers that limited liability, just like a limited partnership used to for the limited partners. But like I said, it's what's the word I'm looking for? We'll just stick with hybrid. Then there's the corporation. So the corporation is a separate legal entity. It pays its own taxes. So it's its own individual taxpayer, whereas an S-corporation and an LLC distribute the overall profit and loss in an S-corporates based upon percentage of ownership and in an LLC, it's a little bit more flexible because you can distribute the profits based upon how the members want it to distribute, if that makes sense. Absolutely. So how does someone decide? I mean, this is something that probably drives me crazy, is people will always say, this is my situation, tell me what to do. And there's a whole list of questions that actually I know an assessment you go through to determine which is going to be the best vehicle for them. So what I don't want anyone to do is go to that ninety nine dollar online get incorporated cheap way to do it because you don't have the corporate help you need, the compliance help, the documentation help and all of that. So that's just my forewarning to folks that are out there to not take just a crumb they hear here and then go do something because that can prove to be extremely costly if you screw it up and don't set it up right. So that's my disclaimer to work with you. People do that all the time. They do. Well, and then the costly error that that can cause people to have to fix it is sometimes worse than just start accurately. Now, so why the year end? I mean, we're coming up on our reporting on December 31st. If they don't do something this year, I always say, you know, they're going to blow 2018 or whatever tax year they're in. So talk about just from that tax perspective and why the timing is so critical to open these accounts. Yeah, definitely. You know, timing is critical. You know, here in the 11th hour, I'm not going to say 59th minute, I'll call it 29th minute. So the 11th hour, 29th minute, we want to make sure that we're getting the most bang for our buck in the way of the tax deductions. You know, operating a salt prider, you're just going to get smashed with self-employment taxes, limited deductibility option, things like that. So the timing is definitely critical. Now is kind of that time to to at least start planning for 2019. But we still have the ability to take advantage of some tax benefits here in 2018. Now, you know, if there is, let's say a sole proprietor business, what we could essentially do is create a corporation that has a fiscal year ending. So instead of a calendar year end, which is coming up here very quick, we can set it up with a fiscal year end like June or September. Now, the benefit of that is let's say you are operating a sole proprietorship. If we put a company in place right now, there's not going to be a whole lot that we can do in going in a retroactive fashion to kind of claim some of those expenses or deductions. But what we can do is we can, in fact, put in place a management company that is going to start overseeing the operations of the business. Now, the benefit of that is that the management company can say, because this relationship is so new, we want to ensure that we're getting paid. What we want to do is we want you to pay us for the rest of this year and the first quarter of next year. Now, the benefit there is the fact that we're now creating an expense or a deduction within 2018. So we're moving that money out of 2018 and putting it into an entity that has a different taxable year end in 2019. Now, what that allows for is for us to be able to take advantage of additional expenses and deductions throughout the course of that next six to nine month time frame, which will, in essence, reduce the taxable liability for 2018. Does that make sense? Absolutely. OK. Yeah. Are there some deductions that they can go, like, for example, their home office, computer equipment that they might have bought, or a new phone, their vehicle? I mean, there are some deductions that they can retro back for the whole year. So talk about some that were obvious to us all the time that most people don't think, or worse, you have a really bad accountant and your accountant says you can't do stuff. Talk about the deductions they can do retro and just overall, even more of the benefit. I mean, I know just working with you guys and putting gas and oil for some clients inside their investment portfolio at 85% appreciation, even though it's the, like you said, the 11th, 59th hour of the year, they still can really, really benefit by doing it right now. Oh, most certainly. Yeah, most certainly. I mean, if we go ahead and we put a corporation in place this year, yes. You know, home office deductions, cell phone deductions, use of vehicle, making contributions to retirement accounts. Yeah. You know, being able to invest into oil and gas and be able to capture that depreciation to offset some of the profit that they may have made as a sole proprietor, if they are a sole proprietor in 2018. Most certainly. What are some of the other deductions that we can claim? So the retirement account, home office, vehicle, cell phone, computer expenses, any type of software subscriptions, you know, putting that in place and either having the company reimbursed or just simply taking it as a deduction. Like you said, there's about 81,000 pages of tax code. And based upon the 2017, 2018 tax reform, they actually added about 531 new pages to that. So now we're talking 81,531 pages of tax code that outline all the different deductions that we can take. But I think really those are the biggest ones. Even if, you know, we're looking to go out and capture like a 179. If you want to go buy a new vehicle for the business or, you know, for yourself, we can go out, purchase it now and be able to take that 179 deduction to fully depreciate the value of vehicle, which would in essence offset the overall taxable income for 2018. And let's talk about compliance, because I think that's where people step over. I mean, they're operating. Well, let's just use an example. So a lot of people are, they'll say, you know, what's the big deal? You know, I've been writing off a Schedule C and doing all that. So first of all, I'm just going to give that explanation because I don't know how many clients you and I have both seen where they've been a sole provider for 20 years. They finally meet us and understand the power of being incorporated and how much they've been missing in their entire strategy. And then they get incorporated. Well, according to the government Financial Institute, Secretary of State, whoever, it looks like that 20 year old company has just begun today, right? 2018, they're like, no. So you lose so much financial ability to have two kinds of credit, corporate credit and personal credit. You lose so much. So talk about that piece of it. But not only that, once they start and open the company, whichever one you advise them to do, then what are some of the things they need to do to stay compliant and to really run it like a company? Well, I think the biggest things are accounting. You know, one of the I talk to business owners who have been in business for 20 plus years and, you know, I ask them about their accounting systems and they tell me that they're still using Microsoft money or Excel spreadsheets, you know, things like that, which how can we really track where we're at and do any type of forecasting? So, you know, having a proper accounting system in place like QuickBooks is essential. But next to that, a lot of people say that if we form an LLC or what have you, that you don't have to maintain minutes resolution. So that's absolutely incorrect. Like I said previously, a corporation and an LLC is an artificial person created by law and has the ability to do anything you want it to do, but think and speak for itself. So in essence, what we've got to do is give those companies a voice and a thought process not only to defend you, but also to defend the different deductions and expenses that it's taking advantage of throughout the course of the year. This is one of the biggest areas that people fall down in is, you know, they've been told, no, well, you don't have to do that. You just have to have an annual meeting. Well, again, by law, it is required that on or about the date in which the decision is made within a company, there has to be corresponding minutes and resolutions to back up those transactions. So it's critical that you have a corporate record book, that you have either bylaws or an operating agreement, which are those governing documents within the business. Next to that are the minutes resolutions, again, itemizing or basically documenting what's happened throughout the course of the year. And the other big one is ownership certificates. A lot of people out there went and formed their company with the state and they were delivered a set of articles and they've got their EIN and they think, hey, we're good to go. But without all of those other corresponding documents, should there ever be any audits coming back from the IRS or from the state, whether there's a liability issue like a contract dispute or a lawsuit, that's the most critical set of documents to, again, create the separation between the business owner and the company. Does that answer that question? Oh, absolutely. Absolutely. So let's talk about, I mean, we talked about the taxes, the corporate compliance, the need for accounting. Let's talk about some of the mistakes people make in the beginning. And I'm going to start by exactly where you were, which is accounting. But even back it up further, it's just basic banking. I mean, most people, what I see in the sole proprietor, that their business isn't making enough money, so they still pay their bills inside their personal bank account until the company makes money. So I want you to elaborate. But, you know, what I would say is fund your company so you get all the money up where it needs to be as you start making money so then you can pay the proper deductions out of there. You know, I know it's really micro, but I think a lot of people don't get started right because they don't know how to do simple things like get their company funded. How do they do credit? So talk about the use of it from these first few weeks before we end the year. And then what do they do as they head into next year? OK, I mean, I can think of so many of them. Exactly. Yeah, I think one of the biggest ones is the commingling of funds using personal bank accounts for businesses. You know, that's one of the biggest mistakes. Secondarily to that is, you know, not really knowing where you're at in business, you know, knowing that your financials, that your chart of accounts are coded correctly and that, you know, your balance sheet looks correct. I see so many different scenarios all the time. Exactly. I'm going to add another one, which is starting to get corporate credit. I think a lot of times, especially new and beginning entrepreneurs have no idea how to that a corporation can have its own credit. It can have its own credit cards. It can have its own standing. I think that's another mistake, right? Well, well, yeah. Using your personal cards for the business use and going out and getting credit under your personal FICO score. Not only does it lessen your borrowing ability as an individual because it's reducing that FICO score. So that's one of the biggest things. And corporations have the ability to build their own corporate credit, like you said, which, in fact, actually would double the borrowing ability. Right. So you're not impacting your FICO score. You're actually building a paydex score within the company. So the company has the ability to manage and sustain its own debt. Yeah. So, Scott, let's get to some examples of how, like, drastic and just impactful and life changing some of these strategies can be. So we know a couple, right, very, very high income earners and they needed a business. So they like to drink wine. It's their hobby and their habit. So they got into the world's largest wine membership. And then they actually take people on wine tours and they use new corporate structure for that. So I'll let you take that example and elaborate on what companies got set up. And also they've got a lot of real estate now. So how, you know, they went from, what, 50 percent tax to, like, 11 percent tax to about 11 percent. Yeah. And that's, again, just utilizing the different structures, being able to like the use of an LLC, because, again, what they're doing is they're ultimately funding the business with their W-2 earnings. And so if, let's say, for instance, with their, you know, they built the wine cellar, they purchased all their inventory. But the amount of income coming in versus what they spent ultimately results in a loss within the business. Now, the benefit of the LLC is that it's going to pass that loss through to offset gains in other areas. And so, yeah, with them being high income earners and being able to take advantage of their business or hobby, if you will, as you put it, would allow those losses to pass through to offset some of that W-2. Right. So some of the other examples, we've got a gentleman who actually has a pretty large online store making quite a bit of income, was looking to take advantage of some depreciation and was given the option of oil and gas. But then he found another option of buying a highly valuable asset, if you will. So what he did was he, in fact, took about a million dollar distribution from his company, which a lot of people would probably crank and go, oh, my God, what's the tax liability on that? But the beautiful thing is, is that if we take that distribution, yes, it's going to show as personal income. But if we invest it into an asset that's going to give you a very high depreciation, like a million dollars. So if you put a million dollars down on this asset, it's a dollar for dollar depreciation. Therefore, that million dollar depreciation wipes out the million dollar distribution and there's zero tax. So now he's got an asset that's going to be making him money in the future, but he also gets to take that million dollar deduction within the business. Does that make sense? Absolutely. The part of the things drives me crazy is the amount of accountants that are uninformed or just very limited in their scope and ability to give great advice, because most people are just, you know, what I'd say, just barely getting people by. Most accountants do what they do best and what they've always done in the past. Right. Most accounts are what you would call a creature of history. This is what we've done for the clients in the past. This is what I'm always going to continue doing. I always make a joke about CPA and I love CPAs. Don't get me wrong. They're great. But there's two different types of CPAs. There's a certified public accountant and then CPA can also stand for cut, paste and attach. Right. It's just doing plugging the numbers. So what you want is you definitely want an accountant who's going to come to you or, you know, a professional who's going to come to you and say, you know, here's some ideas you might want to consider. Not, well, this is what I've done for my clients in the past. When we're talking about working on a growing business or accumulating wealth, what they've done for their clients in the past isn't really going to help you moving forward to save more in taxes. Right. So we want somebody who's proactive in nature, somebody who's going to offer ideas throughout the course of the year and do some tax planning. That's how we work with our clients is tax planning doesn't just happen at the end of the year. That's just recording what you've done over the course of that year. Tax planning happens early on and should be done throughout the course of the year. So we know where we're standing at the end of the year, not having to scramble in that 11th hour, 59th minute to figure out what else we can do. So how do people reach you? We're headed to the year end on this recording, but even if they're listening to this podcast throughout the next year, how do they reach you to, you know, get a consultation, sort out which company they need, get the proper paperwork in place and then start operating like a legitimate company if they're out? Definitely, definitely. Yeah. So I would encourage anybody that wants to take advantage of a comprehensive analysis to reach out to me or actually reach out to Kaylee. She's the one that books the majority of my calendar. The best way to reach her is at 866-786-3462. And Kaylee should answer the phone and just say, hey, I want to schedule a call with either Scott or Mike so that we can get some year end tax planning in place. Awesome. And those of you, if you want to reach anyone else on our team, go to Ask Laurel, A-S-K-L-O-R-A-L, asklaurel.com, where you can ask a question, you can make a request and continue this dialogue with our integrated wealth teams. And we have teams in every category around wealth building, what you're needing to do. So stay tuned for more. We're excited also to watch our new website is coming live. So it is called Integrated Wealth Systems. So we're going to continue bringing to you a very integrated approach. I've been using this example lately, Scott. I said, you know, if you wanted to have surgery, well, you wouldn't go in without the anesthesiologist and whoever, you know, whatever kind of surgery happened, at least one, if not two or three specialists. So, you know, you integrate your medical team. You need to integrate your wealth team. And it starts in this category with you and getting incorporated properly. So thanks for being on Laurel's Real Money Talks. We'll be on again, I'm sure, or at least your partner, Mike, to talk more about the tax side of this as well. So I appreciate you being on today. Yes. Well, thanks for having me and definitely look forward to speaking with everybody. Awesome. Thanks, Scott. And those of you out there, again, go to AskLaurel.com, ask a question. Also register. Every month I come live and answer a variety of those questions. There's thousands that we get during the month. And this one, as we head into every year, you hear me talk about the big five. There's five big things you've got to do to save this year or get compliance this year. So make sure you stay tuned and I will talk to you at Ask Laurel or on our next version of the podcast at Laurel's Real Money Talks. Have a great day. Thanks for listening to the Real Money Talks podcast. Your host has been Laurel Langmyre, author of five New York Times bestsellers, Money Expert on Dr. Phil, CNN, CNBC, The Street TV, Fox News and The View. Want to learn more about off Wall Street investing tax strategies and multimillion dollar business strategies? 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